-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NBd7fjmyLzQlFRBsCS/4tHZzRIDu18vqayaTa7q+yc4k/HvOs55GyGI/zLhQO0SJ pYFMtwgFyxUNNKg8fFTzaQ== 0000950117-97-002138.txt : 19971224 0000950117-97-002138.hdr.sgml : 19971224 ACCESSION NUMBER: 0000950117-97-002138 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971223 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARK RESTAURANTS CORP CENTRAL INDEX KEY: 0000779544 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 133156768 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09453 FILM NUMBER: 97743516 BUSINESS ADDRESS: STREET 1: 85 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10003-3019 BUSINESS PHONE: 2122068800 MAIL ADDRESS: STREET 2: 85 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10003-3019 10-K405 1 ARK RESTAURANTS CORP. FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - -- SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 27, 1997 OR - -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____________ to ____________________ Commission file number 0-14030 ARK RESTAURANTS CORP. ----------------------------------------------------------- (Exact name of Registrant as specified in its charter) New York 13-3156768 - ------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 85 Fifth Avenue, New York, N.Y. 10003 ------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 206-8800 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ---------------------- Common Stock, $.01 par value NASDAQ/NMS Securities registered pursuant to Section 12(g) of the Act: None 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 during the preceding 12 months (or for such 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 -- -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ X ]. The aggregate market value at December 19, 1997 of shares of the Registrant's Common Stock, $.01 par value (based upon the closing price per share of such stock on the Nasdaq National Market) held by non-affiliates of the Registrant was approximately $29,390,715. Solely for the purposes of this calculation, shares held by directors and officers of the Registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the Registrant that such individuals are, in fact, affiliates of the Registrant. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: At December 19, 1997, there were outstanding 3,842,499 shares of the Registrant's Common Stock, $.01 par value. Document Incorporated by Reference: Certain portions of the Registrant's definitive proxy statement to be filed not later than January 26, 1998 pursuant to Regulation 14A are incorporated by reference in Items 10 through 13 of Part III of this Annual Report on Form 10-K. -2- PART I ITEM 1. BUSINESS GENERAL Ark Restaurants Corp. (the "Registrant" or the "Company") is a holding company which, through subsidiaries, owns and operates 23 restaurants and manages five restaurants owned by others. Fifteen of the restaurants owned or managed by the Company are located in New York City, four are located in Washington, D.C., three are located in Las Vegas, Nevada (within the New York, New York Hotel & Casino), three are located in Boston, Massachusetts, and one is located in each of Rhinebeck, New York, McLean, Virginia and Islamorada, Florida. At the New York, New York Hotel & Casino, the Company also operates the room service, banquet facilities and employee dining room and a complex of nine smaller eateries. The Company's other operations include catering businesses in New York City and Washington, D.C., as well as wholesale and retail bakeries in New York City, a cafe at the Warner Bros. studio store in New York City and corporate dining facilities at Universal Studios, California and in an office building in Jersey City, New Jersey. The Company was formed in 1983 to concentrate the ownership of four restaurants previously operated by the Company's principals. Until 1987 all of the Company's facilities were located in the New York City metropolitan area. In 1987, three facilities were opened in Boston, Massachusetts. Since then the Company has opened five facilities in the Washington, D.C. metropolitan area, one in Islamorada, Florida, one in Rhinebeck, New York and one in Jersey City, New Jersey. In January 1997, the Company opened a group of restaurants in the new 2,100-room hotel known as New York, New York Hotel & Casino in Las Vegas, Nevada. In addition to the shift from a Manhattan-based operation, the nature of the facilities operated by the Company 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 the restaurants opened in recent years are of the latter description and the Company intends to concentrate on developing or acquiring similar facilities in the future. The Company opened two such restaurants in fiscal 1995 (B. Smith's in Washington and Bryant Park Grill and Cafe in New York) and one in fiscal 1997 (the restaurant operations at the New York, New York Hotel & Casino in Las Vegas, Nevada). The Las Vegas operations consist of three restaurants, a food court, an employee cafeteria and banquet and room service functions. The names and themes of each of the Company's restaurants are different except for the Company's four America restaurants, two B. Smith's restaurants, two Sequoia restaurants and two Gonzalez y Gonzalez restaurants. The menus in the Company's restaurants are extensive, offering a wide variety of high quality foods at generally moderate prices. Two of the Company's restaurants, Lutece and An American Place, may be classified as expensive. The atmosphere at many of the restaurants is lively and extremely casual. Most of the restaurants have separate bar areas utilized by diners awaiting tables. A majority of the net sales of the Company is 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 decors differ 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. -3- The following table sets forth certain information with respect to the Company's facilities currently in operation.
Seating Capacity(2) Restaurant Size Indoor- Lease Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3) ---- -------- -------------- --------------- --------- ------------- Perretti Columbus Avenue 1977 1,600 124 2003 New York, New York (between 72nd and 73rd Streets) Metropolitan Cafe First Avenue 1982 4,000 180-(50) 2006 New York, New York (between 52nd and 53rd Streets) Ernie's Broadway 1983 6,600 300 2008 New York, New York (between 75th and 76th Streets) America 18th Street 1984 9,600 350 2004 New York, New York (between 5th Avenue and Broadway) Woody's (4) Seventh Avenue South 1986 1,700 90 1999 New York, New York (between Charles and 10th Streets) B. Smith's (5) Eighth Avenue 1986 8,000 400 2011(6) New York, New York (at 47th Street) The Marketplace Faneuil Hall Market 1987 3,000 100 2000 Cafe (4) Boston, Massachusetts El Rio Grande Third Avenue 1987 4,000 160 2014 (4)(7) New York, New York (between 38th and 39th Streets) The Brewskeller Faneuil Hall Market 1987 1,500 50 2000 Pub (4) Boston, Massachusetts An American Park Avenue 1986 6,000 180 2005 Place New York, New York (at 32nd Street) Gonzalez y Broadway 1989 6,000 250 1999 Gonzalez New York, New York (between Houston and Bleeker Streets)
-4-
Seating Capacity(2) Restaurant Size Indoor- Lease Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3) ---- -------- -------------- --------------- --------- ------------- America Union Station 1989 10,000 400 2009 Washington, D.C. Center Cafe Union Station 1989 4,000 200 2009 Washington, D.C. Sequoia Washington Harbour 1990 26,000 600-(400) 2005 Washington, D.C. Sequoia South Street Seaport 1991 12,000 300-(100) 2006 New York, New York Beekman 1766 Mill Street 1991 5,000 225 2001 Tavern Rhinebeck, New York Canyon Road First Avenue 1984 2,500 130 2004 New York, New York (between 76th and 77th Streets) Louisiana Broadway 1992 4,500 130 1999 Community Bar & New York, New York Grill (between Houston & Bleeker Streets) Oar Bar & Grill Faneuil Hall Market 1987 2,500 130 2000 (4) Boston, Massachusetts America Tyson's Corner 1994 11,000 400 2014 McLean, Virginia B. Smith's(5) Union Station 1994 8,600 280 2009 Washington, D.C. Lutece East 50th Street 1994 2,500 92 2019 New York, New York (between 2nd and 3rd Avenues) Lorelei Restaurant Islamorada, Florida 1994 10,000 400 2029 and Cabana Bar Columbus Bakery Columbus Avenue 1988 3,000 75 2002 New York, New York (between 82nd and 83rd Streets) Bryant Park Grill Bryant Park 1995 25,000 180-(820) 2025 & Cafe New York, New York Columbus Bakery First Avenue 1995 2000 75 2006 New York, New York (between 52nd and 53rd Streets)
-5-
Seating Capacity(2) Restaurant Size Indoor- Lease Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3) ---- -------- -------------- --------------- --------- ------------- The Market at Newport Office Tower 1995 7,500 250 2015 Newport (8) 525 Washington Blvd. Jersey City, New Jersey Universal Studios 100 Universal City 1996 8,000 280 (9) Cafeteria (8) Plaza, Universal City, California Granny's (4) Warner Bros. 1996 1,000 48 (10) Studio Store New York, New York (at 57th Street) America New York, New York 1997 20,000 450 2017(11) Hotel & Casino Las Vegas, Nevada Gallagher's New York, New York 1997 5,000 160 2017(11) Hotel & Casino Las Vegas, Nevada Gonzalez y New York, New York 1997 2,000 200 2017(11) Gonzalez Hotel & Casino Las Vegas, Nevada Village Eateries New York, New York 1997 6,300 400(13) 2017(11) (12) Hotel & Casino Las Vegas, Nevada The Grill Room World Financial Center 1997 10,000 250 2012 New York, New York
(1) Restaurants are, from time to time, renovated and/or renamed. "Year Opened" refers to the year in which the Company or an affiliated predecessor of the Company first opened, acquired or began managing a restaurant at the applicable location, notwithstanding that the restaurant may have been renovated and/or renamed since that date. (2) Seating capacity refers to the seating capacity of the indoor part of a restaurant available for dining in all seasons and weather conditions. Outdoor seating capacity, if applicable, is set forth in parentheses and refers to the seating capacity of terraces and sidewalk cafes which are available for dining only in the warm seasons and then only in clement weather. (3) Assumes the exercise of all available lease renewal options. (4) Restaurant owned by a third party and managed by the Company. Management fees earned by the Company are based either on a percentage of cash flow of the restaurant or a fixed amount or a combination of the two. -6- (5) 20% of the stock of each of the corporate subsidiaries operating the two B. Smith's restaurants is owned by the manager of the restaurant. The corporate subsidiaries owning or managing all of the other facilities are wholly-owned by the Company. (6) Includes one five year renewal option exercisable by the Company. (7) The Company owns a 19% interest in the partnership which owns El Rio Grande. (8) Corporate cafeteria managed by the Company. (9) The management agreement for this corporate cafeteria will terminate in January 1998. (10) The management agreement for this facility is terminable by either party upon 60 days' notice. (11) Includes two five-year renewal options exercisable by the Company if certain sales goals are achieved. (12) The Company operates nine small fast food restaurants in a food court at this hotel facility. The Company also operates the hotel's room service, banquet facilities and employee cafeteria. (13) Represents common area seating. RESTAURANT EXPANSION During the second quarter of fiscal 1997, the Company's facilities at the New York, New York Hotel & Casino in Las Vegas, Nevada opened. The Company's facilities consist of a 450-seat restaurant (named America and modeled after the Company's other America restaurants), a 160-seat steakhouse (named Gallagher's under a license agreement from the owner of the New York restaurant of that name), a 200-seat restaurant (named Gonzalez y Gonzalez and modeled after the Company's New York restaurant of the same name) and a group of nine small fast food restaurants in a food court with a New York theme. In addition, the Company operates the hotel's room service, its banquet facilities and its employee cafeteria. The restaurant facilities at the New York, New York Hotel & Casino represent the Company's first effort at designing, constructing and operating restaurants in Las Vegas and the first such facilities in conjunction with a large-scale hotel and casino operation. The number of patrons served at the various facilities at the New York, New York Hotel & Casino far exceeds the number of patrons served by the Company in any other single location. During the third quarter of fiscal 1997, the Company opened The Grill Room at a 10,000 square foot site in the World Financial Center in downtown New York City. During the third quarter of fiscal 1996, the Company purchased two restaurants, Jim McMullen and Mackinac Bar and Grill, which it had been managing and which the Company subsequently sold. During the first quarter of fiscal 1995, the Company opened its second B. Smith's, this one in Union Station, Washington D.C. During fiscal 1994, the Company entered into agreements to acquire Lutece in New York City and the Lorelei Restaurant and Cabana Bar in Islamorada, Florida, both of which acquisitions were completed in the first quarter of fiscal 1995. During the first quarter of fiscal 1996, the Company opened a bakery (another Columbus Bakery), operating on a retail basis similar to that of the existing Columbus Bakery, in premises adjacent to the Company's Metropolitan Cafe restaurant on First Avenue in Manhattan. During fiscal 1995, the Company converted a restaurant on Columbus Avenue in Manhattan into the Columbus Bakery. Both Columbus Bakery facilities supply -7- baked goods to other facilities of the Company in Manhattan and also sell at retail, coffee, baked goods and prepared foods on a "take out" basis or for on premise consumption. 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 and 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 expense and early operating loss can generally be expected to depend upon the size and complexity of the facility being opened. The Company estimates that such pre-opening expenses and early operating losses were approximately $2,000,000 in fiscal 1997 and approximately $200,000 in fiscal 1996, in each case primarily in connection with the opening of the facilities at the New York, New York Hotel & Casino. The Company's restaurants generally do not achieve substantial increases from year to year in net sales or profits. The Company will have to continue to open new and successful restaurants or expand existing restaurants to achieve significant increases in net sales or to replace net sales of restaurants which experience declining popularity or which close because of lease expirations or other reasons. After a restaurant is opened, there can be no assurance that such restaurant will be successful, particularly since in many instances the Company will not operate new restaurants under a tradename currently used by the Company, thereby requiring each new restaurant to establish its own identity. The Company intends to continue to direct its restaurant expertise and financial resources in developing larger restaurants benefitting from the high patron traffic of unique locations, such as the Sequoia restaurants in the South Street Seaport in New York and the Washington Harbour in Washington, the America and B. Smith's restaurants in Union Station in Washington, the Bryant Park facilities in New York and the Las Vegas facilities. Nevertheless, the Company also intends to take advantage of other opportunities considered to be favorable when they occur, such as the acquisition of the highly regarded restaurant Lutece. RECENT RESTAURANT DISPOSITIONS In the third quarter of fiscal 1996, the Company sold the Whale's Tail restaurant in Oxnard, California, which the Company had acquired in November 1993. In the first quarter of fiscal 1997, the Company sold three of its smaller restaurants (Mackinac Bar & Grill, The Museum Cafe and Albuquerque Eats/The Rodeo Bar), each of which was operating at a loss at the time of its sale. In the first quarter of fiscal 1998, the Company sold Jim McMullen restaurant. RESTAURANT MANAGEMENT Each restaurant is managed by its own manager and has its own chef. Food products and other supplies are purchased from various unaffiliated suppliers, in most cases by the Company's headquarters personnel. Each of the Company's restaurants has two or more assistant managers and assistant chefs. The executive chef department designs menus and supervises the kitchens. Financial and management control is maintained at the corporate level through the use of an automated data processing system that includes centralized accounting and reporting. The Company has developed its own proprietary software which processes information input daily at the Company's restaurants. The Company believes that the information generated by this process enables it to monitor closely the activities at each restaurant and enhances the Company's ability to effectively manage its restaurants. EMPLOYEES -8- At December 6, 1997, the Company employed 2,616 persons (including employees at managed facilities), 39 of whom were headquarters personnel, 178 of whom were restaurant management personnel, 841 of whom were kitchen personnel and 1,558 of whom were restaurant service personnel. A number of the Company's restaurant service personnel are employed on a part-time basis. Changes in minimum wage levels may affect the labor costs of the Company and the restaurant industry generally because a large percentage of restaurant personnel are paid at or slightly above the minimum wage. With the exception of the employees at Lutece in New York, the Company's employees are not covered by a collective bargaining agreement. The Company believes its employee relations are satisfactory. GOVERNMENT REGULATION The Company is subject to various federal, state and local laws and regulations affecting its business, including a variety of regulatory provisions relating to the wholesomeness of food, sanitation, health, safety and licensing in the sale of alcoholic beverages. A number of the Company's restaurants have open or enclosed outdoor cafes which require the approval of, or licensing by, a number of governmental agencies. The suspension by any regulatory agency of the food service or the liquor license of any of the Company's restaurants would have a material adverse effect upon the affected restaurant and may adversely affect the Company as a whole. The New York State Liquor Authority must approve any transaction in which a shareholder of the Company increases his holdings to 10% or more of the outstanding capital stock of the Company and any transaction involving 10% or more of the outstanding capital stock of the Company. SEASONAL NATURE OF BUSINESS The Company's business is highly seasonal. The second quarter of the Company's fiscal year, consisting of the non-holiday portion of the cold weather season in New York, Boston and Washington (January, February and March), is the poorest performing quarter. The Company achieves its best results during the warm weather, attributable to the Company's extensive outdoor dining availability, particularly at Bryant Park and Sequoia in Washington (the Company's largest restaurants) and the Company's outdoor cafes. The Company anticipates that its facilities in Las Vegas will operate on a more level basis through the year and, accordingly, may have the effect of reducing the seasonal nature of the Company's business as it currently exists. FORWARD LOOKING STATEMENTS This report contains forward looking statements that involve risks and uncertainties. Discussions containing such forward-looking statements may be found in the material set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as throughout this report generally. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below. Competition. The restaurant business is intensely competitive and involves an extremely high degree of risk. The Company believes that a large number of new restaurants open each year and that a significant number of them do not succeed. Even successful restaurants rapidly can lose popularity due to changes in consumer tastes, turnover in personnel, the opening of competitive restaurants, unfavorable reviews and other factors. There can be no assurance that the Company's existing restaurants will retain their current popularity or that new restaurants opened by the Company will be successful. There is active competition for competent chefs and management personnel and intense competition among major restaurateurs and food service companies for the larger, unique sites suitable for restaurants. -9- Importance of New Restaurants. The Company's restaurants generally do not achieve substantial increases from year to year in net sales or profits. The Company will have to continue to open new and successful restaurants or expand existing restaurants to achieve significant increases in net sales or to replace net sales of restaurants which experience declining popularity or which close because of lease expirations or other reasons. The acquisition or construction of new restaurants requires significant capital resources. New large scale projects that have been the focus of the Company's efforts in recent years would likely require additional financing. After a restaurant is opened, there can be no assurance that such restaurant will be successful, particularly since in many instances the Company will not operate new restaurants under a tradename currently used by the Company, thereby requiring each new restaurant to establish its own identity. Dependence on Key Personnel. The success of the Company depends to a significant extent upon the performance of senior management and in particular on the services of Michael Weinstein, President of the Company. The loss of the services of Mr. Weinstein would have a material adverse effect on the Company. Government Regulation. The Company is subject to various Federal, state and local laws and regulations affecting its business, including regulatory provisions relating to the wholesomeness of food, sanitation, health, safety and licensing in the sale of alcoholic beverages. The suspension by any regulatory agency of the food service or the liquor license of any of the Company's restaurants would have a material adverse effect upon the affected restaurant and may adversely affect the Company as a whole. The wholesomeness of food served at the Company's restaurants is dependent in part upon third party purveyors. ITEM 2. PROPERTIES The Company's restaurant facilities identified in the chart above and its executive offices are occupied under leases. Most of the Company's restaurant 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 Company's sales at such facility. These leases (excluding leases for managed restaurants) have initial terms expiring as follows: Years Lease Number of Term Expire Facilities ------------- ------------ 1996-2000 6 2001-2005 7 2006-2010 12 2011-2015 4 2016-2020 1 2021-2025 1 2026-2030 1 The Company's executive, administrative and clerical offices, located in approximately 8,500 square feet of office space at 85 Fifth Avenue, New York, New York, are occupied under a lease which expires in October 2008, which includes one five-year renewal option. The Company maintains an office in Washington, D.C. for its catering operations under a short-term lease. For information concerning the Company's future minimum rental commitments under non-cancelable operating leases, see Note 8 of Notes to Consolidated Financial Statements. -10- ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is a party to various lawsuits arising from accidents at its restaurants and workmen'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. Various discrimination suits are currently pending, some of which involve substantial claims for compensatory and punitive damages. The Company does not believe that any of such suits will have a materially adverse effect upon the Company, its financial condition or operations. A lawsuit was commenced against the Company in October 1997 in the District Court for the Southern District of New York by 44 present and former employees alleging various violations of Federal wage and hour laws. While the action is in its early stages, the Company does not believe that its liability, if any, from an adverse result in this matter would be material. A lawsuit was commenced against the Company in April 1997 in the District Court for Clark County, Nevada by one former employee and one current employee of the Company's Las Vegas subsidiary alleging that (i) the Company forced food service personnel at the Company's Las Vegas restaurant facilities to pay a portion of their tips back to the Company in violation of Nevada law and (ii) the Company failed to timely pay wages to terminated employees. The action was brought as a class action on behalf of all similarly situated employees. The Company believes that the first allegation is entirely without merit and that the Company will have no liability. The Company also believes that its liability, if any, from an adverse result in connection with the second allegation would be inconsequential. The Company intends to vigorously defend against these claims. In addition, several unfair labor practice charges have been filed against the Company before the National Labor Relations Board with respect to the Company's Las Vegas subsidiary. The Company believes that these unfair labor practice charges and the litigation described above are part of an ongoing campaign by the Culinary Workers Union which is seeking to represent employees at the Company's Las Vegas restaurants. However, rather than pursue the normal election process pursuant to which employees are given the freedom to choose whether they should be represented by a union, a process which the Company supports, the Company believes the union is seeking to achieve recognition as the bargaining agent for such employees through a campaign directed not at the Company's employees but at the Company itself and its stockholders. The Company intends to continue to support the right of its employees to decide such matters and to oppose the efforts of the Culinary Workers Union to circumvent that process. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -11- EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names and ages of executive officers of the Company and all offices held by each person: Name Age Positions and Offices ---- --- --------------------- Michael Weinstein 54 President Vincent Pascal 54 Vice President and Secretary Robert Towers 50 Vice President and Treasurer Andrew Kuruc 39 Vice President and Controller Each executive officer of the Company serves at the pleasure of the Board of Directors and until his successor is duly elected and qualifies. Michael Weinstein has been President and a director of the Company since its inception in January 1983. Since 1978, Mr. Weinstein has been an officer, director and 25% shareholder of Easy Diners, Inc., a restaurant management company which operates three restaurants in New York City. Easy Diners, Inc. is not a parent, subsidiary or other affiliate of the Company. Mr. Weinstein spends substantially all of his business time on Company-related matters. Vincent Pascal was elected Vice President, Assistant Secretary and a director of the Company in October 1985. Mr. Pascal became Secretary of the Company in January 1994. Robert Towers has been employed by the Company since November 1983 and was elected Vice President, Treasurer and a director in March 1987. Andrew Kuruc has been employed as Controller of the Company since April 1987 and was elected as a director of the Company in November 1989. -12- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's Common Stock, $.01 par value, is traded in the over-the-counter market on the Nasdaq National Market ("Nasdaq") under the symbol "ARKR". The high and low sale prices for the Common Stock from October 1, 1995 through September 27, 1997 are as follows: Calendar 1995 High Low - ------------- ---- --- Fourth Quarter 10 7 1/4 Calendar 1996 - ------------- First Quarter 8 6 Second Quarter 11 1/2 7 1/4 Third Quarter 10 7 3/4 Fourth Quarter 12 3/4 9 1/4 Calendar 1997 - ------------- First Quarter 15 1/4 10 1/4 Second Quarter 11 1/4 7 5/8 Third Quarter 11 1/2 8 1/4 DIVIDENDS The Company has not any paid cash dividends since its inception and does not intend to pay dividends in the foreseeable future. Under the terms of the Credit Agreement between the Company and its main lender, the Company may pay cash dividends and redeem shares of Common Stock in any fiscal year only to the extent of an aggregate amount equal to 20% of the Company's consolidated operating cash flow for such fiscal year. NUMBER OF SHAREHOLDERS As of December 19, 1997, there were 95 holders of record of the Company's Common Stock. -13- ARK RESTAURANTS CORP. AND SUBSIDIARIES ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth certain financial data for the fiscal years ended 1993 through 1997. This information should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto appearing at page F-1.
YEAR ENDED ------------------------------------------------------------------------ SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1, OCTOBER 2, 1997 1996 1995 1994 1993 OPERATING DATA: Net sales $104,326,386 $76,795,940 $73,026,907 $60,404,339 $55,973,227 Gross restaurant profit 75,874,499 55,934,475 53,001,963 43,562,653 40,364,491 Operating income 2,785,713 497,996 960,794 840,452 3,384,230 Other income, net 96,550 743,615 937,763 507,200 268,606 Income before provision for income taxes and extraordinary item 2,882,263 1,241,611 1,898,557 1,347,652 3,652,836 Income before extraordinary item 1,737,655 788,762 1,121,126 643,032 1,817,637 NET INCOME 1,737,655 788,762 1,121,126 1,150,802 1,936,737 Income per share before extraordinary item and cumulative effect of accounting change $ 0.47 $ 0.24 $ 0.34 $ 0.20 $ 0.57 NET INCOME PER SHARE $ 0.47 $ 0.24 $ 0.34 $ 0.36 $ 0.61 Weighted average number of shares used in computation 3,716,020 3,241,394 3,251,336 3,225,680 3,198,429 BALANCE SHEET DATA (end of period): Total assets 41,268,098 32,379,479 28,541,920 21,768,747 19,037,744 Working capital (deficit) (2,373,859) (1,303,920) 40,996 1,517,601 490,956 Long-term debt 6,126,797 6,403,866 4,014,162 761,386 165,728 Shareholders' equity 25,888,880 17,804,394 16,706,301 15,210,202 13,908,116 Shareholders' equity per share 6.97 5.49 5.24 4.88 4.51 Facilities in operation at end of year, including managed 46 32 32 27 26
-14- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACCOUNTING PERIOD The Company's fiscal year ends on the Saturday nearest September 30. The fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995 included 52 weeks. NET SALES Net sales at restaurants owned by the Company increased by 35.8% from fiscal 1996 to fiscal 1997 and by 5.2% from fiscal 1995 to fiscal 1996. The increase in fiscal 1997 was primarily due to sales from the food and beverage operations in the New York New York Hotel & Casino resort in Las Vegas ("the Las Vegas facilities") which opened in January 1997. At the Las Vegas facilities the Company operates a 450 seat, twenty four hour a day restaurant (America); a 160 seat steakhouse restaurant (Gallagher's); a 200 seat Mexican restaurant (Gonzalez y Gonzalez); the resort's room service, banquet facilities and an employee dining facility. The Company also operates a complex of nine smaller eateries (Village Eateries) in the resort which simulate the experience of walking through New York City's Little Italy and Greenwich Village. Same store sales in fiscal 1997 increased by 2.6% principally due to increased customer counts. The increase in fiscal 1996 was primarily due to the first full operating year of one of the Company's largest restaurants which opened in fiscal 1995 (Bryant Park Grill & Cafe) and a full operating year of a restaurant which was closed for part of fiscal 1995 (Ernie's), offset in part by the decrease in sales resulting from a restaurant which the Company sold in fiscal 1996 (Whale's Tail) and by declining net sales at four restaurants classified as restaurants held for sale (of which three were sold in the first quarter of fiscal 1997 -Museum Cafe, Rodeo Bar and Grill, and Mackinac Bar and Grill). Same store sales in fiscal 1996 decreased by 3.0% principally due to decreased customer counts. COSTS AND EXPENSES The Company's cost of sales consists principally of food and beverage costs at restaurants owned by the Company. Cost of sales as a percentage of net sales was 27.3% in fiscal 1997, 27.2% in fiscal 1996 and 27.4% in fiscal 1995. Cost of sales in fiscal 1997 were impacted by higher cost of sales experienced during the early operating period at the Company's Las Vegas facilities. The Company expects that cost of sales will improve in the upcoming fiscal year. Operating expenses of the Company, consisting of restaurant payroll, occupancy and other expenses at restaurants owned by the Company, as a percentage of net sales, were 65.9% in fiscal 1997, 67.9% in fiscal 1996 and 66.7% in fiscal 1995. This decrease in operating expenses in fiscal 1997 as compared to fiscal 1996 was principally due to benefits achieved from the sale of three restaurants in fiscal 1997 which had operated at a loss in fiscal 1996 and to a lesser extent a benefit from the 2.6% increase in same store sales. Restaurant payroll was 36.9% in fiscal 1997, 36.1% in fiscal 1996 and 35.9% in fiscal 1995. This increase is principally due to higher payroll costs at the Company's Las Vegas facilities as compared to the Company's other operations and to the lesser extent from increases in minimum wage rates. Payroll expenses in fiscal 1995 were impacted by costs associated with new restaurant openings and to a special charge related to the settlement of a claim at one of the Company's New York restaurants alleging violations of federal and state wage and hour laws. Occupancy expenses (consisting of rent, rent taxes, real estate taxes, insurance and utility costs) as a percentage of net sales were 12.5% in fiscal 1997, 12.8% in fiscal 1996 and 12.5% in fiscal 1995. -15- The Company incurred approximately $2,000,000 of pre-opening expenses and early operating losses at newly opened restaurants in fiscal 1997, $200,000 in fiscal 1996 and $950,000 in fiscal 1995. The fiscal 1997 expenses and losses were from the opening of the Company's Las Vegas facilities. The Company typically incurs significant pre-opening expenses in connection with its new restaurants which are expensed as incurred. Furthermore, it is not uncommon that such restaurants experience operating losses during the early months of operation. General and administrative expenses, as a percentage of net sales, were 5.2% in fiscal 1997 as compared to 5.8% in both fiscal 1996 and fiscal 1995. The decrease in fiscal 1997 was primarily due to the fact that the Company was able to manage the 35.8% increase in net sales with a lower percentage increase in general and administrative expenses. If net sales at managed restaurants were included in consolidated net sales, general and administrative expenses as a percentage of net sales would have been 4.6% in fiscal 1997 and 5.0% in both fiscal 1996 and fiscal 1995. As of September 27, 1997 the Company managed five restaurants owned by others (El Rio Grande and Woody's in Manhattan, the Marketplace Cafe, Oar Bar & Grill, and the Brewskeller Pub in Boston, Massachusetts), a cafe in a store in New York City (Warner Bros.), corporate dining facilities in Universal City, California (Universal Studios) and corporate dining facilities in an office building in Jersey City, New Jersey (Market at Newport). Net sales of these restaurant facilities, which are not included in consolidated net sales were $14,151,000 in fiscal 1997, $12,802,000 in fiscal 1996 and $10,839,000 in fiscal 1995. Interest expense was $755,000 in fiscal 1997, $426,000 in fiscal 1996 and $359,00 in fiscal 1995. The increase in fiscal 1997 from 1996 is principally due to borrowings to finance the construction costs and working capital requirements of the Las Vegas restaurant facilities which opened in January 1997. Interest income was $72,000 in fiscal 1997, $87,000 in fiscal 1996 and $78,000 in fiscal 1995. Other income, which generally consists of purchasing service fees, and the sale of logo merchandise at various restaurants, was $780,000 in fiscal 1997, $1,083,000 in fiscal 1996 and $1,219,000 in fiscal 1995. A significant portion of the amounts received in all three fiscal years was principally due to amounts the Company received from a third party due to the temporary closing in fiscal 1994 and fiscal 1995 of a restaurant (Ernie's). 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 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 which operate 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 was 40% in fiscal 1997, 37% in fiscal 1996 and 40% in fiscal 1995. 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 (Nevada has no state income tax and other states in which the Company operate have income tax rates substantially lower in comparison to New York) and the utilization of state and local net operating loss carry forwards. In order to more effectively utilize tax loss carry forwards at restaurants that were unprofitable, the Company has merged certain profitable subsidiaries with certain loss subsidiaries. -16- As a result of the enactment of the Revenue Reconciliation Act of 1993, the Company is entitled, commencing January 1, 1994, to a tax credit based on the amount of FICA taxes paid by the Company with respect to the tip income of restaurant service personnel. The net benefit to the Company was $373,000 in fiscal 1997, $349,000 in fiscal 1996 and $299,000 in fiscal 1995. The Internal Revenue Service is currently examining the Company's Federal income tax returns for the fiscal years ended September 28, 1991 through October 1, 1994 and the Internal Revenue Service has proposed certain adjustments, all of which are being contested by the Company. The Company does not believe that any adjustments resulting from such examination will have a material effect on the Company's financial condition. LIQUIDITY AND SOURCES OF CAPITAL The Company's primary source of capital is cash provided by operations and funds available from the revolving credit agreement with its main bank. The Company utilizes capital primarily to fund the cost of developing and opening new restaurants and acquiring existing restaurants. The net cash used in investing activities in fiscal 1997 ($10,445,000), fiscal 1996 ($6,693,000) and fiscal 1995 ($9,096,000) was used principally for the Company's continued investment in fixed assets associated with constructing new restaurants and acquiring existing restaurants. In fiscal 1997 the Company finished and opened the Las Vegas restaurant facilities which had also been in construction since fiscal 1996. In fiscal 1995 the Company opened a 1,200 seat restaurant in Bryant Park, a nine-acre park behind the New York City Public Library (Bryant Park Grill & Cafe) and opened another restaurant in Union Station in Washington, DC (B.Smith's, the Company's second such restaurant). The Company also acquired two restaurants - a renowned French restaurant in New York City (Lutece) and a casual restaurant and bar in the Florida Keys (Lorelei Restaurant and Cabana Bar). The net cash provided by financing activities in fiscal 1997 was principally due to proceeds ($6,028,000) of a private placement of 551,454 shares of the Company's common stock. In fiscal 1996 net cash provided by financing activities was principally from the Company's borrowings on its main credit facility exceeding repayments on such facility. In fiscal 1995 net cash provided by financing activities was principally from the Company's borrowings on its main credit facility exceeding repayments on such facility and from the sale leaseback of various kitchen equipment in a restaurant opened in New York City (Bryant Park Grill & Cafe). At September 27, 1997 the Company had a working capital deficit of $2,374,000 as compared to working capital deficit of $1,304,000 at September 28, 1996. The significant decrease in working capital in fiscal 1997 from fiscal 1996 was principally due to cash expended for the construction of the Las Vegas facilities. The restaurant business does not require the maintenance of significant inventories or receivables. Thus the Company is able to operate with negative working capital. The Company's Revolving Credit and Term Loan Facility with its main bank includes a $7,000,000 facility for use in construction of and as working capital for the Las Vegas restaurant facilities (the "Las Vegas Facility") and a $5,000,000 facility for working capital purposes at the Company's other restaurants (the "New York Facility"). At September 27, 1997 the Company had $2,750,000 outstanding on the Las Vegas Facility. Any outstanding amount on the Las Vegas Facility in March 1998 may be converted into a two year term loan. The Company may not borrow any further amounts on the Las Vegas Facility as per the Agreement. At September 27, 1997, the Company had no borrowings on the New York Facility. The Company is permitted to borrow up to $5,000,000 on this facility until March 1998 and any outstanding amount in March 1998 may be converted into a two year term loan. -17- The Company also has a four year $1,300,000 Letter of Credit Facility for use in lieu of lease security deposits. At September 27, 1997 the Company had delivered $694,000 in irrevocable letters of credit on this facility. In December 1996, the Company raised net proceeds of $6,028,000 through a private placement of 551,454 shares of its common stock at $11 per share. The proceeds were used to repay a portion of the Company's outstanding borrowings on its Revolving Credit and Term Loan Facility and for the payment of capital expenditures on the Las Vegas facilities. The amount of indebtedness that may be incurred by the Company is limited by the revolving credit agreement with its main bank. Certain provisions of the agreement may impair the Company's ability to borrow funds. RESTAURANT EXPANSION The Company recently signed a lease for a new facility in the South Street Seaport in downtown New York City where the Company intends to open a 200 seat Southwestern style bar and restaurant. The Company does not anticipate significant capital expenditures in connection with the opening of this restaurant for the site was formerly occupied by a restaurant and the Company is receiving a $500,000 construction allowance from the landlord. Although the Company is not currently committed to any other projects, the Company is exploring additional opportunities for expansion of its business. The Company expects to fund its projects through cash from operations and existing credit facilities. Additional expansion may require additional external financing. RECENT DEVELOPMENTS In the first quarter of fiscal 1998, the Company sold a restaurant located in New York City (Jim McMullen) for $1,750,000. The restaurant was operating at a loss at the time of its sale. The Company received $200,000 in cash on closing; the balance of $1,550,000 was financed by notes payable with interest at 7.5% per annum due in monthly installments through December 1, 2008, at which time the outstanding balance of $519,000 matures. The Company expects to record a gain of approximately $185,000 in fiscal 1998 and additional deferred gains totalling approximately $1,000,000 could be recognized in future periods as the notes are collected. The Company deferred recognition of the gain on the sale due to uncertainty as to the ultimate collectibility of the outstanding notes. The Financial Accounting Standards Board has recently issued several new accounting pronouncements. Statement No. 128, "Earnings per Share" established standards for computing and presenting earnings per share, and is effective for financial statements for both interim and annual periods ending after December 15, 1997. Statement No. 129, "Disclosure of Information about Capital Structure" establishes standards for disclosing information about an entity's capital structure, and is effective for financial statements for periods ending after December 15, 1997. Statement No. 130, "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components, and is effective for fiscal years beginning after December 15, 1997. Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers, and is effective for financial statements for periods beginning after December 15, 1997. The effect of the adoption of the Statements on the Company's consolidated financial statements is not expected to be material. -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS ON WITH ACCOUNTANTS ACCOUNTING AND FINANCIAL DISCLOSURE None. -19- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See Part I, Item 4. "Executive Officers of the Company." Other information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 26, 1998 pursuant to Regulation 14A of the General Rules and Regulations ("Regulation 14A") under the Securities Exchange Act of 1934, as amended. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 26, 1998 pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 26, 1998 pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 26, 1998 pursuant to Regulation 14A. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS: PAGE ---- Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets -- at September 27, 1997 and September 28, 1996 F-2 Consolidated Statements of Operations -- For each of the three fiscal years ended September 27, 1997, September 28, 1996, and September 30, 1995 F-3 Consolidated Statements of Shareholders' Equity -- For each of the three fiscal years ended September 27, 1997, September 28, 1996, and September 30, 1995 F-4 Consolidated Statements of Cash Flows -- For each of the three fiscal years ended September 27, 1997, September 28, 1996, and September 30, 1995 F-5 Notes to Consolidated Financial Statements F-6
-20- (2) EXHIBITS: 3.1 Certificate of Incorporation of the Registrant, filed on January 4, 1983, incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 1, 1994 (the "1994 10-K"). 3.2 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed on October 11, 1985, incorporated by reference to Exhibit 3.2 to the 1994 10-K. 3.3 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed on July 21, 1988, incorporated by reference to Exhibit 3.3 to the 1994 10-K. 3.4 By-Laws of the Registrant, incorporated by reference to Exhibit 3.4 to the 1994 10-K. 10.1 Amended and Restated Redemption Agreement dated June 29, 1993 between the Registrant and Michael Weinstein, incorporated by reference to Exhibit 10.1 to the 1994 10-K. 10.2 Form of Indemnification Agreement entered into between the Registrant and each of Michael Weinstein, Ernest Bogen, Vincent Pascal, Robert Towers, Jay Galin, Andrew Kuruc and Donald D. Shack, incorporated by reference to Exhibit 10.2 to the 1994 10-K. 10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated by reference to Exhibit 10.3 to the 1994 10-K. 10.4 Second Amended and Restated Credit Agreement dated as of March 5, 1996 between the Company and Bank Leumi Trust Company of New York, incorporated by reference to Exhibit 10.52 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 30, 1996 (the "March 1996 10-Q"). 10.5 Ark Restaurants Corp. 1996 Stock Option Plan, incorporated by reference to Exhibit 10.53 to the March 1996 10-Q. *21 Subsidiaries of the Registrant. *23 Consent of Deloitte & Touche LLP. *27 Financial Data Schedule pursuant to Article 5 of Regulation S-X filed with EDGAR Version only. --------------------------------- *Filed Herewith (b) Reports on Form 8-K: None -21- INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Ark Restaurant Corp. We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and its subsidiaries as of September 27, 1997 and September 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended September 27, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Ark Restaurants Corp. and subsidiaries as of September 27, 1997 and September 28, 1996, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 27, 1997, in conformity with generally accepted accounting principles. New York, New York November 21, 1997 ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
September 27, September 28, 1997 1996 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 772,283 $ 907,003 Accounts receivable 1,975,434 1,462,499 Current portion of long-term receivables (Note 2) 227,402 93,951 Inventories (Note 3) 2,044,689 1,168,384 Deferred income taxes (Note 12) 915,534 631,027 Prepaid expenses and other current assets 432,816 545,777 ----------- ----------- Total current assets 6,368,158 4,808,641 ----------- ----------- LONG-TERM RECEIVABLES (Note 2) 971,023 360,344 ASSETS HELD FOR SALE (Note 3) 1,892,639 2,614,090 FIXED ASSETS -- At cost (Notes 4 and 7); Leasehold improvements 22,526,150 13,019,524 Furniture, fixtures and equipment 18,387,492 11,113,933 Leasehold improvements in progress 50,053 6,289,726 ----------- ----------- 40,963,695 30,423,183 Less accumulated depreciation and amortization 14,037,200 11,325,141 ----------- ----------- 26,926,495 19,098,042 ----------- ----------- INTANGIBLE ASSETS -- Net (Note 4) 3,346,176 3,885,095 DEFERRED INCOME TAXES (Note 12) 1,081,006 933,547 OTHER ASSETS (Note 5) 682,601 679,720 ----------- ----------- $41,268,098 $32,379,479 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable -- trade $ 3,560,250 $ 2,365,939 Accrued expenses and other current liabilities (Note 6) 3,098,356 3,030,684 Current maturities of capital lease obligations (Note 8) 245,412 240,855 Current maturities of long-term debt (Note 7) 1,424,129 150,689 Accrued income taxes (Note 12) 413,870 324,394 ----------- ----------- Total current liabilities 8,742,017 6,112,561 ----------- ----------- OBLIGATIONS UNDER CAPITAL LEASES (Note 8) 406,533 662,347 LONG-TERM DEBT -- Net of current maturities (Notes 4 and 7) 4,702,668 6,253,177 OPERATING LEASE DEFERRED CREDIT (Note 8) 1,528,000 1,547,000 COMMITMENTS AND CONTINGENCIES (Notes 7 and 8) SHAREHOLDERS' EQUITY (Notes 7, 9 and 10): Common stock, par value $.01 per share -- authorized, 10,000,000 shares; issued, 5,177,836 and 4,608,882 shares, respectively 51,779 46,089 Additional paid-in capital 14,131,383 7,790,242 Retained earnings 12,953,117 11,215,462 ----------- ----------- 27,136,279 19,051,793 Less treasury stock, 1,345,337 shares 1,247,399 1,247,399 ----------- ----------- 25,888,880 17,804,394 ----------- ----------- $41,268,098 $32,379,479 =========== ===========
See notes to consolidated financial statements F-2 ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Year Ended ---------------------------------------------------------------------- September 27, September 28, September 30, 1997 1996 1995 NET SALES $ 104,326,386 $ 76,795,940 $ 73,026,907 COST OF SALES 28,451,887 20,861,465 20,024,944 ------------- ------------- ------------- Gross restaurant profit 75,874,499 55,934,475 53,001,963 MANAGEMENT FEE INCOME (Note 11) 1,153,264 1,204,808 925,332 ------------- ------------- ------------- 77,027,763 57,139,283 53,927,295 OPERATING EXPENSES: Payroll and payroll benefits 38,520,986 27,740,390 26,191,191 Occupancy 13,031,811 9,843,110 9,035,078 Depreciation 3,320,739 2,664,892 2,289,211 Other 13,922,524 11,918,198 11,227,851 ------------- ------------- ------------- 68,796,060 52,166,590 48,743,331 GENERAL AND ADMINISTRATIVE EXPENSES 5,445,990 4,474,697 4,223,170 ------------- ------------- ------------- 74,242,050 56,641,287 52,966,501 ------------- ------------- ------------- OPERATING INCOME 2,785,713 497,996 960,794 ------------- ------------- ------------- OTHER EXPENSE (INCOME): Interest expense (Note 7) 755,383 425,810 359,159 Interest income (71,652) (86,708) (77,856) Other income (Note 13) (780,281) (1,082,717) (1,219,066) ------------- ------------- ------------- (96,550) (743,615) (937,763) ------------- ------------- ------------- INCOME BEFORE PROVISION FOR INCOME TAXES 2,882,263 1,241,611 1,898,557 PROVISION FOR INCOME TAXES (Note 12) 1,144,608 452,849 777,431 ------------- ------------- ------------- NET INCOME $ 1,737,655 $ 788,762 $ 1,121,126 ============= ============= ============= INCOME PER SHARE: NET INCOME $ .47 $. 24 $ .34 ============= ============= ============= WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATIONS 3,716,020 3,241,394 3,251,336 ============= ============= =============
See notes to consolidated financial statements. F-3 ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996, AND SEPTEMBER 30, 1995 - --------------------------------------------------------------------------------
Common Stock Additional Total --------------------------- Paid-in Retained Treasury Shareholders' Shares Amount Capital Earnings Stock Equity BALANCE, OCTOBER 1, 1994 4,461,832 $ 44,618 $ 7,107,409 $ 9,305,574 $(1,247,399) $15,210,202 Exercise of stock options 74,550 746 182,111 -- -- 182,857 Tax benefit on exercise of options -- -- 192,116 -- -- 192,116 Net income -- -- -- 1,121,126 -- 1,121,126 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, SEPTEMBER 30, 1995 4,536,382 45,364 7,481,636 10,426,700 (1,247,399) 16,706,301 Exercise of stock options 72,500 725 183,650 -- -- 184,375 Tax benefit on exercise of options -- -- 124,956 -- -- 124,956 Net income -- -- -- 788,762 -- 788,762 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, SEPTEMBER 28, 1996 4,608,882 46,089 7,790,242 11,215,462 (1,247,399) 17,804,394 Common stock private placement 551,454 5,515 6,023,111 -- -- 6,028,626 Issuance of warrants -- -- 175,000 -- -- 175,000 Exercise of stock options 17,500 175 85,450 -- -- 85,625 Tax benefit on exercise of options -- -- 57,580 -- -- 57,580 Net income -- -- -- 1,737,655 -- 1,737,655 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, SEPTEMBER 27, 1997 5,177,836 $ 51,779 $14,131,383 $12,953,117 $(1,247,399) $25,888,880 =========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements. F-4 ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Year Ended ----------------------------------------------------- September 27, September 28, September 30, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,737,655 $ 788,762 $ 1,121,126 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets 3,047,422 2,324,304 1,988,968 Amortization of intangibles 445,123 492,207 450,787 (Gain) loss on sale of restaurants (229,000) 297,000 -- Provision for uncollectible long-term receivables -- 96,000 100,000 Operating lease deferred credit (19,000) 10,000 151,000 Deferred income taxes (431,966) (692,492) (302,100) Changes in assets and liabilities: Increase in accounts receivable (512,935) (184,672) (188,651) Increase in inventories (890,567) (65,597) (239,205) Decrease (increase) in prepaid expenses and other current assets 112,961 603,675 (368,292) (Increase) decrease in other assets, net 60,008 (232,205) 139,956 Increase in accounts payable -- trade 1,194,311 330,167 229,830 Increase in accrued income taxes 89,476 59,025 238,211 Increase in accrued expenses and other current liabilities 13,672 181,392 397,528 ------------ ------------ ------------ Net cash provided by operating activities 4,617,160 4,007,566 3,719,158 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to fixed assets (11,006,116) (6,833,018) (6,610,540) Additions to intangible assets (11,639) (110,849) (145,872) Issuance of demand notes and long-term receivables -- (63,092) (224,913) Payments received on demand notes and long-term receivables 264,370 171,651 220,772 Restaurant sales 308,000 250,000 -- Restaurant acquisitions -- (108,000) (2,335,712) ------------ ------------ ------------ Net cash used in investing activities (10,445,385) (6,693,308) (9,096,265) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payment on long-term debt (10,277,900) (1,857,045) (1,847,224) Issuance of long-term debt 10,000,831 4,100,000 4,500,000 Exercise of stock options 143,205 309,331 374,973 Principal payment on capital lease obligations (251,257) (230,825) (117,218) Proceeds from sale lease back -- -- 824,947 Proceeds from common stock private placement 6,028,626 -- -- ------------ ------------ ------------ Net cash provided by financing activities 5,643,505 2,321,461 3,735,478 ------------ ------------ ------------ DECREASE IN CASH AND CASH EQUIVALENTS (184,720) (364,281) (1,641,629) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 907,003 1,271,284 2,912,913 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 722,283 $ 907,003 $ 1,271,284 ============ ============ ============ SUPPLEMENTAL INFORMATION: Cash payments for the following were: Interest $ 931,383 $ 515,810 $ 422,159 ============ ============ ============ Income taxes $ 1,502,643 $ 966,434 $ 649,689 ============ ============ ============
See notes to consolidated financial statements. F-5 ARK RESTAURANTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 27, 1997, SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995 - -------------------------------------------------------------------------------- 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 23 restaurants, and manage 5 restaurants, of which 15 are in New York City, 4 in Washington, D.C., three in Las Vegas, Nevada (within the New York New York Hotel and Casino Resort), three in Boston, Massachusetts and one each in Rhinebeck, New York; McLean, Virginia; and Islamorada, Florida. Along with the three restaurants within the New York New York Hotel & Casino Resort, the Company also operates the Resort's room service, banquet facilities, employee dining room and a complex of nine smaller cafes and food operations. The Company's other operations include catering businesses in New York City and Washington, D.C. as well as wholesale and retail bakeries in New York City, a cafe at the Warner Bros. store in New York City and corporate dining facilities at Universal Studios, California and in an office building in Jersey City, New Jersey. Accounting Period -- The Company's fiscal year ends on the Saturday nearest September 30. The fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995 included 52 weeks. Significant Estimates -- 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 while actual results could differ from those estimates, 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. Principles of Consolidation -- The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliated companies where the Company is able to exercise significant influence over operating and financial policies even though the Company holds 50% or less of the voting stock, are accounted for under the equity method. Cash Equivalents -- Cash equivalents include instruments with original maturities of three months or less. Accounts Receivable -- Included in accounts receivable are amounts due from employees of $719,871 and $620,950 for fiscal years ended September 27, 1997 and September 28, 1996. Such amounts, which are due on demand, are principally due to various employees exercising stock options in accordance with the Company's Stock Option Plan (See note 10). Inventories -- Inventories are stated at the lower of cost (first-in, first-out) or market, and consist of food and beverages, merchandise for sale and other supplies. F-6 Fixed Assets -- Leasehold improvements and furniture, fixtures and equipment are stated at cost. Depreciation of furniture, fixtures and equipment (including equipment under capital leases) is computed using the straight-line method over the estimated useful lives of the respective assets (7 years). Amortization of improvements to leased properties is computed using the straight-line method based upon the initial term of the applicable lease or the estimated useful life of the improvements, whichever is less, and ranges from 5 to 35 years. Certain costs incurred during the construction period of restaurants, including rental of premises, training and payroll, are expensed as incurred. Intangible and Other Assets -- Costs associated with acquiring leases and subleases, principally purchased leasehold rights, have been capitalized and are being amortized on the straight-line method based upon the initial terms of the applicable lease agreements, which range from 10 to 21 years. Goodwill recorded in connection with the acquisition of shares of the Company's common stock from a former shareholder, as discussed in Note 4, is being amortized over a period of 40 years. Goodwill arising from restaurant acquisitions is being amortized over a period of 15 years. Legal and other costs incurred to organize restaurant corporations are capitalized as organization costs and are amortized over a period of 5 years. Covenants not to compete arising from restaurant acquisitions are amortized over the contractual period of 5 years. Certain legal and bank commitment fees incurred in connection with the Company's Revolving Credit and Term Loan Facility were capitalized as deferred financing fees and are being amortized over four years, the term of the facility. The Company periodically assesses the recoverability of intangible assets on an asset by asset basis using the projected undiscounted operating income. Operating Lease Deferred Credit -- Several of the Company's operating leases contain predetermined increases in the rentals payable during the term of such leases. For these leases, the aggregate rental expense over the lease term is recognized on a straight-line basis over the lease term. The excess of the expense charged to operations in any year and amounts payable under the leases during that year are recorded as a deferred credit. The deferred credit subsequently reverses over the lease term (Note 8). Occupancy Expenses -- Occupancy expenses include rent, rent taxes, real estate taxes, insurance and utility costs. Income Per Share of Common Stock -- Per share data is based upon the weighted average number of shares of common stock and common stock equivalents outstanding during each year. Common stock equivalents consist of dilutive stock options. Fully dilutive income per share of common stock is not shown for the effect is not material. Impact of Recently Issued Accounting Standards -- The Financial Accounting Standards Board has issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for the Impairment of Long-Lived Assets to Be Disposed of" ("SFAS 121"), which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This F-7 Statement was adopted by the Company as of September 29, 1996. The effect of the adoption of SFAS 121 on the Company's consolidated financial statements was not material. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. Under the provisions of SFAS No. 123, effective for the fiscal year beginning September 29, 1996, the Company may either adopt the new fair value-based accounting method or continue the intrinsic value-based method for employee stock-based compensation and provide pro forma disclosure of net income and earnings per share as if the accounting provisions of SFAS No. 123 had been adopted. The Company adopted only the disclosure requirements of SFAS No. 123. The Company generally does not grant options to outsiders; accordingly the adoption of SFAS No. 123 did not have a material effect on the Company's consolidated net earnings or cash flows. Future Impact of Recently Issued Accounting Standards -- The Financial Accounting Standards Board has recently issued several new accounting pronouncements. Statement No. 128, "Earnings per Share" established standards for computing and presenting earnings per share, and is effective for financial statements for both interim and annual periods ending after December 15, 1997. Statement No. 129, "Disclosure of Information about Capital Structure" establishes standards for disclosing information about an entity's capital structure, and is effective for financial statements for periods ending after December 15, 1997. Statement No. 130, "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components, and is effective for fiscal years beginning after December 15, 1997. Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers, and is effective for financial statements for periods beginning after December 15, 1997. The effect of the adoption of the Statements on the Company's consolidated financial statements is not expected to be material. Reclassifications -- Certain reclassifications have been made to the 1996 and 1995 financial statements to conform to the 1997 presentation. F-8 2. LONG-TERM RECEIVABLES Long-term receivables consist of the following:
September, 27 September 28, 1997 1996 Note receivable secured by fixed assets and lease at a restaurant sold by the Company, at 8% interest; due in monthly installments through December 2006(a) $ 687,497 $ - Note receivable secured by fixed assets and lease at a restaurant sold by the Company, at 7.5% interest; due in monthly installments through March 2002(b) 190,798 - Advances for construction and working capital, at one of the Company's managed locations, at 15% interest; due in monthly installments through December 2000 225,983 270,829 Advances for construction, at one of the Company's managed locations, at prime plus 1%, due in monthly installments through December 1999 59,632 79,521 Note receivable, secured by personal guarantees of officers of a managed restaurant and fixed assets at that location, at 15% interest; due in monthly installments, through September 2000 79,118 98,548 Other 5,397 5,397 ---------- -------- 1,248,425 454,295 Less current portion 277,402 93,951 ---------- -------- $ 971,023 $ 360,344 ========== =========
(a) In December 1996, the Company sold a restaurant for $900,000. Cash of $50,000 was received on sale and the balance is due in installments through December 2006. The Company provided an estimated loss on disposal of $200,000 in the fiscal year ended September 28, 1996 for this disposal. (b) In October 1996, the company sold a restaurant for $258,500. Cash of $50,000 was received on sale and the balance is due in installments through March 2002. The Company recognized a gain of $134,000 on this sale. The carrying value of the Company's long-term receivables approximates its current aggregate fair value. 3. ASSETS HELD FOR SALE At September 27, 1997 the Company was actively pursuing the sale of two restaurants and, accordingly, reclassified the net fixed assets ($1,669,251), net intangible assets ($180,619) and inventories ($42,769) as assets held for sale. (See Note 15.) F-9 At September 28, 1996, the Company was actively pursuing the sale of four restaurants and, accordingly, reclassified the net fixed assets ($2,248,231), net intangible assets ($503,884) and inventories ($61,975) as assets held for sale. The Company sold three of these restaurants during the fiscal year ended September 27, 1997 for an aggregate selling price of $1,366,000, of which an aggregate of $308,000 was paid in cash and the balance of $1,058,000 is payable in various periods through December 2006. Gains of approximately $229,000 were recognized on these sales (see Note 2). 4. INTANGIBLE ASSETS Intangible assets consist of the following:
September 27, September 28, 1997 1996 Goodwill(a) $3,802,877 $3,962,877 Purchased leasehold rights(b) 552,740 552,740 Noncomplete agreements and other(a) 790,000 840,000 Organization costs(a) 586,954 600,030 ----------- ---------- 5,732,571 5,955,647 Less accumulated amortization 2,386,395 2,070,552 ----------- ---------- $3,346,176 $3,885,095 =========== ==========
(a) In August 1985, certain subsidiaries of the Company acquired approximately one-third of the then outstanding shares of common stock (964,599 shares), from a former officer and director of the Company for a purchase price of $3,000,000. The consolidated balance sheets reflect the allocation of $2,946,00 to goodwill. During fiscal 1996 the Company acquired two restaurants for approximately $108,000 in cash, the cancellation of long-term receivables of $880,000 and the assumption of notes payable totaling $550,000. The acquisitions were accounted for as purchase transactions with the purchase price allocated as follows: inventories $28,000, leasehold improvements $575,000, furniture, fixtures and equipment $350,000 and intangible assets $679,000. At September 28, 1996 the Company was actively pursuing the sale of one of the two restaurants it acquired in fiscal 1996 and, accordingly, reclassified net intangible assets of $452,000 to assets held for sale. In the fiscal year ended September 27, 1997, the Company completed the sale of such restaurant and also actively pursued the sale of the other restaurant it had acquired in the fiscal year ended September 28, 1996. Accordingly, the Company reclassified net intangible assets of $180,619 to assets held for sale at September 27, 1997 (see Note 3). (b) Purchased leasehold rights arise from acquiring leases and subleases of various restaurants. F-10 5. OTHER ASSETS Other assets consist of the following:
September 27, September 28. 1997 1996 Deposits $ 408,797 $ 453,038 Deferred financing fees 271,292 172,942 Investments in and advances to affiliates(a) 2,512 53,740 ----------- --------- $ 682,601 $ 679,720 =========== =========
(a) The Company, through a wholly owned subsidiary, became a general partner with a 19% interest in a partnership which acquired on July 1, 1987 an existing Mexican food restaurant, El Rio Grande, in New York City. Several related parties also participate as limited partners in the partnership. The Company's equity in earnings of the limited partnership was $40,000, $48,000, and $60,000 for the years ended September 27, 1997, September 28, 1996 and September 30, 1995, respectively. The Company also manages El Rio Grande through another wholly owned subsidiary on behalf of the partnership. Management fee income relating to these services was $311,000, $450,000 and $519,000 for the years ended September 27, 1997, September 28, 1996 and September 30, 1995, respectively (Note 11). 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following:
September 27, September 28, 1997 1996 Sales tax payable $ 803,805 $ 569,731 Accrued wages and payroll related costs 878,795 717,772 Other current liabilities 1,415,756 1,743,181 ----------- ---------- $3,098,356 $3,030,684 =========== ==========
F-11 7. LONG-TERM DEBT Long-term debt consists of the following:
September 27, September 28, 1997 1996 Revolving Credit and Term Loan Facility with interest at the prime rate, plus 1%, payable on March 1, 1998(a) $2,750,000 $5,400,000 Notes issued in connection with refinancing of restaurant equipment, at 8.75%, payable in monthly installments through January 2002(b) 2,538,581 - Note issued in connection with acquisition of restaurant site, at 7.25%, payable in monthly installments through January 1, 2000(c) 475,554 516,320 Note issued in connection with acquisition of restaurant site, at 8.5%, payable in monthly installments through April 2001(d) 362,662 487,546 ---------- -------- 6,126,797 6,403,866 Less current maturities 1,424,129 150,689 ---------- ---------- $4,702,668 $6,253,177 ========== ==========
(a) The Company's Revolving Credit and Term Loan Facility with its main bank includes a $7,000,000 facility (the "Las Vegas Facility") for use in construction of and as working capital for the Company's Las Vegas food and beverage operations and a $5,000,000 facility (the "New York Facility") for working capital purposes at the Company's other restaurants. At September 27, 1997, The Company had $2,750,000 in borrowings outstanding on the Las Vegas facility. The Company had previously borrowed during the fiscal year ended September 27, 1997, $7,000,000 on the Las Vegas Facility and in accordance with the bank agreement it may not borrow any further amounts on this facility. Any outstanding amount as of March 1998 may be converted into a two-year term loan. At September 27, 1997, the Company had no borrowings outstanding on the New York Facility; however, the Company is permitted to borrow up to $5,000,000 until March 1998 at which time any outstanding borrowings may be converted into a two-year term loan. Outstanding revolving loans bear interest at 1% above the bank's prime rate until converted into term loans, at which time the interest rate is 1 1/2% above the bank's prime rate. The Company paid a commitment fee of $150,000 at closing and a facility fee of 1/2% is due on any unused portion of the revolving credit facility. The agreement includes a four-year $1,300,000 Letter of Credit Facility for use for the Company's existing restaurants. The Company is generally required to pay commissions of 1 1/2% per annum on outstanding letters of credit. The Company's subsidiaries each guaranteed the obligations of the Company under the foregoing facilities and granted security interests in their respective assets as collateral for such guarantees. In addition, the Company pledged stock of such subsidiaries as security for obligations of the Company under such facilities. F-12 The agreement includes restrictions relating to, among other things, indebtedness for borrowed money, capital expenditures, advances to managed businesses, mergers, sale of assets, dividends, and liens on the property of the Company. The agreement also contains financial covenants requiring the Company to maintain a minimum ratio of debt to net worth, minimum shareholders' equity, and a minimum ratio of cash flow prior to debt service. The Company is in compliance with all covenants. (b) In January 1997, the Company borrowed from its main bank, $2,851,000 to refinance the purchase of various restaurant equipment at its food and beverage facilities in a hotel and casino in Las Vegas, Nevada. The notes bear interest at 8.75% per annum and are payable in 60 equal monthly installments of $58,833 inclusive of interest, until maturity in January 2002. The Company granted the bank a security interest in such restaurant equipment. In connection with such financing, the Company granted the bank the right to purchase 35,000 shares of the Company's common stock at the exercise price of $11.625 per share through December 2001. The fair value of the warrants was estimated at the date of grant, credited to additional paid-in capital and is being amortized over the life of the warrant. (c) In November 1994, the Company issued a $600,000 note in connection with the acquisition of a restaurant in the Florida Keys. The Company remits monthly payments of $7,044 inclusive of interest until January 1, 2000, at which time the outstanding balance of $358,511 is due. The debt is secured by the leasehold improvements and tangible personal property at the restaurant. (d) In April 1996 the Company acquired a restaurant for $550,000, which was financed by issuing a note payable in monthly installments of $13,461, inclusive of interest. At September 27, 1997, the Company was actively pursuing the sale of this restaurant and accordingly has classified the total balance due of $362,662 as a current liability within the current maturities of long-term debt balance (see Note 15). Required principal payments on long-term debt are as follows: Year Amount 1998 $1,424,129 1999 1,479,940 2000 2,337,272 2001 654,351 2002 231,105 ---------- $6,126,797 ========== During the fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995, interest expense was $931,383, $515,810 and $422,159, respectively, of which $176,000, $90,000 and $63,000 was capitalized during the fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995. The carrying value of the Company's long-term debt approximates its current aggregate fair value. F-13 8. COMMITMENTS AND CONTINGENCIES LEASES -- The Company leases its restaurants, bar facilities, and administrative headquarters through its subsidiaries under terms expiring at various dates through 2029. 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. As of September 27, 1997, future minimum lease payments, net of sublease rentals, under noncancellable leases are as follows: Operating Capital Year Leases Leases 1998 $ 6,941,888 $321,235 1999 6,518,013 253,720 2000 6,157,663 154,118 2001 6,276,737 - 2002 6,269,495 - Thereafter 32,019,799 - ----------- --------- Total minimum payments $64,183,595 729,073 =========== Less amount representing interest 77,128 -------- Present value of net minimum lease payments $651,945 ======== In connection with the leases included in the table above, the Company obtained and delivered irrevocable letters of credit in the aggregate amount of $693,758 as security deposits under such leases. Rent expense (net of sublease rental income of $124,025 for the fiscal year ended September 30, 1995) was $9,102,267, $6,117,296 and $5,633,662, during the fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995, respectively. Rent expense for the fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995 includes approximately $19,000, $10,000 and $151,000 of operating lease deferred credits, representing the difference between rent expense recognized on a straight-line basis and actual amounts currently payable. Contingent rentals, included in rent expense, were $2,432,404, $547,038 and $405,399 for the fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995, respectively. LEGAL PROCEEDINGS -- In the ordinary course of its business, the Company is a party to various lawsuits arising from accidents at its restaurants and workmen'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. Various discrimination suits are currently pending, some of which involve substantial claims for compensatory and punitive damages. The Company does not believe that any of such suits will have a materially adverse effect upon the Company, its financial condition or operations. F-14 A lawsuit was commenced against the Company in October 1997 in the District Court for the Southern District of New York by 44 present and former employees alleging various violations of Federal wage and hour laws. While the action is in its early stages, the Company does not believe that its liability, if any, from an adverse result in this matter would be material. A lawsuit was commenced against the Company in April 1997 in the District Court for Clark County, Nevada by one former employee and one current employee of the Company's Las Vegas subsidiary alleging that (i) the Company forced food service personnel at the Company's Las Vegas facilities to pay a portion of their tips back to the Company in violation of Nevada law and (ii) the Company failed to timely pay wages to terminated employees. The action was brought as a class action on behalf of all similarly situated employees. The Company believes that the first allegation is entirely without merit and that the Company will have no liability. The Company also believes that its liability, if any, from an adverse result in connection with the second allegation would be inconsequential. The Company intends to vigorously defend against these claims. In addition, several unfair labor practice charges have been filed against the Company before the National Labor Relations Board with respect to the Company's Las Vegas subsidiary. The Company believes that these unfair labor practice charges and the litigation described above are part of an ongoing campaign by the Culinary Workers Union which is seeking to represent employees at the Company's Las Vegas restaurants. However, rather than pursue the normal election process pursuant to which employees are given the freedom to choose whether they should be represented by a union, a process which the Company supports, the Company believes the union is seeking to achieve recognition as the bargaining agent for such employees through a campaign directed not at the Company's employees but at the Company itself and its stockholders. The Company intends to continue to support the right of its employees to decide such matters and to oppose the efforts of the Culinary Workers Union to circumvent that process. 9. COMMON STOCK PRIVATE PLACEMENT In December 1996, the Company raised net proceeds of $6,028,626 in a private placement of 551,454 shares of its common stock at $11 per share. The proceeds of such offering were used to repay a portion of the Company's outstanding bank borrowings and for the payment of capital expenditures on its Las Vegas restaurant facilities at the New York New York Hotel & Casino in Las Vegas which opened in January 1997. 10. STOCK OPTIONS On October 15, 1985, the Company adopted a Stock Option Plan (the "Plan") pursuant to which the Company reserved for issuance an aggregate of 175,000 shares of common stock. In May 1991 and March 1994, the Company amended such Plan to increase the number of shares issuable under the Plan to 350,000 and 447,650, respectively. In March 1996, the Company adopted a second plan and reserved for issuance an additional 135,000 shares. In March 1997, the Company amended this plan to increase the number of shares included under the plan to 270,000. Options granted under the Plans to key employees and directors 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 five years after the date of grant and are generally exercisable as to 25% of the shares commencing on the first anniversary of the date of grant and as to an additional 25% commencing on each of the second, third and fourth anniversaries of the date of grant. F-15 Additional information follows:
1997 1996 1995 ------------------------ ---------------------- ---------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding, beginning of year 105,625 $ 7.18 189,125 $5.45 183,800 $ 3.09 Options: Granted 150,000 11.71 - 81,000 8.00 Exercised (17,500) 4.89 (72,500) 2.54 (74,550) 2.45 Canceled or expired (10,625) 6.37 (11,000) 8.00 (1,125) 3.38 ------- ------- ------- Outstanding, end of year(a) 227,500 10.38 105,625 7.18 189,125 5.45 ------- ------- ------- Shares available for future grant 120,000 135,000 20,075 ------- ------- ------- Options exercisable(a) 47,500 7.65 43,125 6.34 88,125 2.87 ------- ------- -------
(a) Options become exercisable at various times until expiration dates ranging from December 1997 through July 2002. Statement of Financial Accountings Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123") requires the Company to disclose pro-forma net income and pro-forma earnings per share information for employee stock option grants made in fiscal 1997 as if the fair-value method defined in SFAS No. 123 had been applied. The fair value of each stock-option grant is estimated on the date of grant using the Black-Scholes option-pricing. The assumptions for fiscal 1997 include: risk-free interest rates of 6.5%; no dividend yield; expected life of 4 years and expected volatility of 38%. The pro-forma impact for fiscal 1997 was as follows: Net Earnings as reported $1,737,655 Net Earnings - pro-forma 1,694,991 Earnings per share as reported $.47 Earnings per share pro-forma .46 No options were granted during fiscal 1996 and therefore no pro-forma is required. The exercise of nonqualified stock options in the fiscal years ended September 27, 1997, September 28, 1996 and September 30, 1995 resulted in income tax benefits of $57,580, $124,956 and $192,116, respectively, which were credited to additional paid-in capital. The income tax benefits result from the difference between the market price on the exercise date and the option price. F-16 11. MANAGEMENT FEE INCOME As of September 27, 1997, the Company provides management services to five restaurants and two corporate dining facilities owned by outside parties. In accordance with the contractural arrangements, the Company earns fixed fees and management fees based on restaurant sales and operating profits as defined by the various management agreements. Restaurants managed had net sales of $14,151,888, $12,802,305 and $10,838,664 during the management periods within the years ended September 27, 1997, September 28, 1996 and September 30, 1995, respectively, which are not included in consolidated net sales of the Company. 12. 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 subsidiary on a nonconsolidated basis. For New York State and City income tax purposes, the losses incurred by a subsidiary may only be used to offset that subsidiary's income. The provision for income taxes consists of the following:
Year Ended ---------------------------------------------------- September 27 September 28, September 30, 1997 1996 1995 Current provision: Federal $ 668,391 $ 519,771 $ 532,947 State and and local 908,183 625,570 475,062 ---------- ---------- ---------- 1,576,574 1,145,341 1,008,009 ---------- ---------- ---------- Deferred provision (credit): Federal (329,602) (592,721) (314,745) State and local (102,364) (99,771) 84,167 ---------- ---------- ---------- (431,966) (692,492) (230,578) ---------- ---------- ----------- $1,144,608 $ 452,849 $ 777,431 ========== ========== ===========
F-17 The provision for income taxes differs from the amount computed by applying the Federal statutory rate due to the following:
Year Ended -------------------------------------------------------------------- September 27, September 28, September 30, 1997 1996 1995 Provision for Federal income taxes (34%) $ 980,000 $426,000 $646,000 State and local income taxes net of Federal tax benefit 532,000 347,000 369,000 Amortization of goodwill 26,000 26,000 26,000 Tax credits (373,000) (349,000) (299,000) Other (20,392) 2,849 35,431 ---------- -------- ---------- $1,144,608 $452,849 $ 777,431 ========== ======== ==========
Deferred tax assets or liabilities are established for (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss carryforwards. The tax effects of items comprising the Company's net deferred tax asset are as follows:
September 27, September 28, 1997 1996 Deferred tax assets: Operating loss carryforwards $ 858,937 $ 804,641 Operating lease deferred credits 657,958 671,537 Carryforward tax credits 1,157,368 835,721 Provision for uncollectible long-term receivable -- 68,000 Depreciation and amortization 11,045 -- Valuation allowance (688,768) (738,277) ----------- ----------- 1,996,540 1,641,622 Deferred tax liabilities: Depreciation and amortization -- 77,048 ----------- ----------- Net deferred tax asset $ 1,996,540 $ 1,564,574 =========== ===========
A valuation allowance for deferred taxes is required if, based on the evidence, it is more likely than not that some of the deferred tax assets will not be realized. The Company believes that uncertainty exists with respect to future realization of certain operating loss carryforwards and operating lease deferred credits. Therefore, the Company provided a valuation allowance of $688,768 at September 27, 1997 and $738,277 at September 28, 1996. The Company has State operating loss carryforwards of $10,960,758 and local operating loss carryforwards of $8,045,724 which expire in the years 2002 through 2012. F-18 The Internal Revenue Service is currently examining the Company's federal income tax returns for fiscal years ended September 28, 1991 through October 1, 1994, and the Internal Revenue Service has proposed certain adjustments, all of which are being contested by the Company. The Company does not believe that any adjustments resulting from this examination will have a material effect on the Company's financial condition. 13. OTHER INCOME Other income consists of the following:
Year Ended ---------------------------------------------------------------------- September 27, September 28, September 30, 1997 1996 1995 Purchasing service fees $ 86,073 $ 55,551 $ 67,367 Insurance proceeds(a) 377,427 726,415 914,475 Sales of logo T-shirts and hats 171,259 214,291 180,364 Other 145,522 86,460 56,860 -------- ---------- ---------- $780,281 $1,082,717 $1,219,066 ======== ========== ==========
(a) In July 1994, the Company was required to close a restaurant in Manhattan (Ernie's) on a temporary basis to enable structural repairs to be made to the ceiling of the restaurant. The cost of such repairs, other ongoing restaurant operating expenses and a guaranteed profit were borne by a third party. The restaurant reopened in February 1995 and the agreement provides that the third party continue to guarantee some level of operating profits through January 1998. During the fiscal years ended September 27, 1997 and September 28, 1996, the Company received $377,427 and $726,415, respectively, in excess of the continuing restaurant operating expenses. 14. QUARTERLY INFORMATION (UNAUDITED) The following table sets forth certain quarterly operating data.
Fiscal Quarter Ended --------------------------------------------------------------------------------------- December 28, March 29, June 28, September 27, 1996 1997 1997 1997 1997 Net sales $18,166,656 $24,887,795 $31,469,304 $29,802,631 Gross restaurant profit 13,068,926 17,775,683 22,922,594 22,107,296 Net income (loss) (552,503) (1,108,203) 1,947,476 1,450,885 Net income (loss) per share $ (0.16) $ (0.29) $ 0.51 $ 0.38
F-19
Fiscal Quarter Ended ----------------------------------------------------------------------------------------- December 30, March 30, June 29, September 28, 1995 1996 1996 1996 1996 Net sales $18,723,119 $15,450,293 $22,600,958 $20,021,570 Gross restaurant profit 13,545,173 11,147,783 16,684,719 14,556,800 Net income (loss) 25,108 (1,028,807) 1,137,265 655,196 Net income (loss) per share $ 0.01 $ (0.32) $ 0.35 $ 0.20
15. SUBSEQUENT EVENTS (UNAUDITED) RESTAURANT SALE -- In the first quarter of fiscal 1998, the Company sold a restaurant located in New York City. The selling price for the restaurant was $1,750,000 of which $200,000 was paid in cash and the balance of $1,550,000 is due in monthly installments of $18,569, inclusive of interest at 7.5%, from May 1998 through April 2000 and monthly installments of $14,500, inclusive of interest at 7.5% from May 2000 through December 2008. At December 2008 an outstanding balance of $519,260 matures. The Company expects to recognize a gain of approximately $185,000 in fiscal 1998. * * * * * * F-20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 23rd day of December, 1997. ARK RESTAURANTS CORP. By: /s/Michael Weinstein -------------------------- MICHAEL WEINSTEIN, President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been duly signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE - --------- ----- ----- /s/ Ernest Bogen Chairman of the Board December 23, 1997 - ---------------- (Ernest Bogen) /s/ Michael Weinstein President and Director December 23, 1997 - --------------------- (Michael Weinstein) /s/ Vincent Pascal Vice President, December 23, 1997 - ------------------ Secretary and Director (Vincent Pascal) /s/ Robert Towers Vice President, Treasurer, December 23, 1997 - ----------------- Principal Financial Officer (Robert Towers) and Director /s/ Andrew Kuruc Vice President, Controller, December 23, 1997 - ---------------- Principal Accounting Officer (Andrew Kuruc) and Director /s/ Donald D. Shack Director December 23, 1997 - ------------------- (Donald D. Shack) /s/ Jay Galin Director December 23, 1997 - ------------------- (Jay Galin) /s/ Paul Gordon Director December 23, 1997 - ------------------- (Paul Gordon)
EX-21 2 EXHIBIT 21 EXHIBIT 21 Subsidiaries of the Registrant Jurisdiction of Subsidiary Incorporation ---------- ------------- Columbus Cafe Corp. New York SSWB Restaurants, Inc. New York MEB Emporium Corp. New York MEB On Columbus Inc. New York MEB Dining 18, Inc. New York MEB On First, Inc. New York Conis Realty Corp. New York Conis Restaurant Corp. New York Ernie's Hackensack, Inc. New Jersey Four Gentlemen From Verona, Inc. New Jersey La Femme Noire, Inc. New York Ark 27th Street, Inc. New York Ark Seventh Avenue South Corp. New York Ark Rio Corp. New York Ark Operating Corp. New York Ark Sub-One Corp. New York Ark 474 Corp. New York Ark Twenty-Ninth Street Corp. New York Ark Boston Corp. Massachusetts Ark Union Station, Inc. District of Columbia Ark D.C. Kiosk, Inc. District of Columbia Ark Potomac Corporation District of Columbia Washington Parties & Events Related Industries, Inc. District of Columbia Aroc and Ark Corporation New York Ark Bryant Park Corp. New York Ark of the Seaport, Inc. New York Ark Parties, Inc. New York Tysons America Corp. Virginia Ark JC Corp. Florida Ark Oxnard Corp. California Ark California Restaurants Corp. California Ark JMR Corp. New York Ark Fifth Avenue Corp. New York Ark Islamorada Corp. Florida KRA Holdings, Inc. New York La Femme Noire D.C. Incorporated District of Columbia Ark Cafeteria Corp. New Jersey Las Vegas Steakhouse Corp. Nevada Las Vegas America Corp. Nevada Las Vegas Festival Food Corp. Nevada Ark WFC Corp. New York Ark Las Vegas Restaurant Corp. Nevada Ark Fulton Street Corp. New York EX-23 3 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Form S-8 Registration Statement No. 33-48217 and Registration Statement No. 33-85724 of Ark Restaurants Corp. of our report dated November 21, 1997, appearing in this Annual Report on Form 10-K of Ark Restaurants Corp. for the year ended September 27, 1997. New York, New York December 23, 1997 EX-27 4 EXHIBIT 27
5 The schedule contains summary financial information extracted from the consolidated balance sheet of Ark Restaurants Corp. and its subsidiaries as of September 27, 1997, and the related consolidated statement of operations, and is qualified in its entirety by reference to such financial statements. YEAR SEP-27-1997 SEP-27-1997 722,283 0 1,975,434 0 2,044,689 6,368,158 40,963,695 14,037,200 41,268,098 8,742,017 6,778,742 51,779 0 0 25,837,101 41,268,098 104,326,386 104,326,386 28,451,887 74,242,050 0 0 0 2,882,263 1,144,608 1,737,655 0 0 0 1,735,655 0.47 0.47
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