UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 1, 2005
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 No.)
Incorporation or Organization)
85 Fifth Avenue, New York, NY 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: None.
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, par value $0.01.
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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes No X
--- ---
Indicate by check mark whether the Registrant is a shell company (as
defined in Exchange Act Rule 12b-2). Yes No X
--- ---
The aggregate market value at December 16, 2005 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 $53,221,000. 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.
At December 9, 2005, there were outstanding 3,462,299 shares of the
Registrant's Common Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement to be filed not later than 120 days after the end of the fiscal
year covered by this form are incorporated by reference in Part III, Items 10,
11, 12, 13 and 14 of this Report.
PART I
------
Item 1. Business
- ------- --------
Overview
Ark Restaurants Corp. (the "Registrant" or the "Company") is a New York
corporation formed in 1983. Through its subsidiaries, it owns and operates 23
restaurants and bars, 26 fast food concepts, catering operations, and wholesale
and retail bakeries. Initially its facilities were located only in New York
City. At this time, eight of the restaurants are located in New York City, four
are located in Washington, D.C., nine are located in Las Vegas, Nevada, and two
are located in Atlantic City, New Jersey. The Company's Las Vegas operations
include:
-- three restaurants within the New York-New York Hotel & Casino
Resort, and operation of the resort's room service, banquet facilities, employee
dining room and nine food court operations;
-- two restaurants, two bars and four food court facilities at the
Venetian Casino Resort;
-- one restaurant at the Neonopolis Center at Fremont Street; and
-- one restaurant within the Forum Shops at Caesar's Shopping
Center.
In 2004, the Company established operations in Florida which include five fast
food facilities in Tampa, Florida and eight fast food facilities in Hollywood,
Florida, each at a Hard Rock Hotel and Casino operated by the Seminole Indian
Tribe at these locations. All pre-opening expenses were borne by outside
investors who invested in a limited liability company established to develop,
construct, operate and manage these facilities. The Company is the managing
member of this limited liability company and, through this limited liability
company, the Company leases and manages the operations of each of these
facilities in exchange for a monthly management fee equal to five-percent of the
gross receipts of these facilities. Neither the Company nor any of its
subsidiaries contributed any capital to this limited liability company. None of
the obligations of this limited liability company are guaranteed by the Company
and investors in this limited liability company have no recourse against the
Company or any of its assets.
In December 2005, the Company established operations in Atlantic City, New
Jersey by opening a bar, Luna Lounge, in the Resorts Atlantic City Hotel and
Casino. The Company anticipates opening a separate restaurant, a Gallagher's
Steakhouse, at the Resorts Atlantic City Hotel and Casino in Atlantic City, New
Jersey on New Years Eve 2005.
In addition to the shift from a Manhattan-based operation to a multi-city
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 Company's restaurants which are in operation
and which have been opened in recent years are of the latter description. These
include the restaurant operations at the New York-New York Hotel & Casino in Las
Vegas, Nevada (1997); the Stage Deli located at the Forum Shops in Las Vegas,
Nevada, Red, located at the South Street Seaport in New York (1998); Thunder
Grill in Union Station, Washington, D.C. (1999); two restaurants and four food
court facilities at the Venetian Casino Resort in Las Vegas, Nevada (2000); The
Saloon, at the Neonopolis Center in downtown Las Vegas, Nevada (2002); the 13
fast food facilities in Tampa, Florida and Hollywood, Florida, respectively
(2004); and the Gallagher's Steakhouse and Luna Lounge in the Resorts Atlantic
City Hotel and Casino in Atlantic City, New Jersey (2005). The Company is not
currently committed to any new projects. The Company has sold a number of its
smaller, neighborhood restaurants.
2
The names and themes of each of the Company's restaurants are different except
for the Company's two America restaurants, two Sequoia restaurants, two Gonzalez
y Gonzalez restaurants and two Gallagher's Steakhouse restaurants. The menus in
the Company's restaurants are extensive, offering a wide variety of high quality
foods at generally moderate prices. Of the Company's restaurants, the Lutece
restaurant 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. 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 decor differs from restaurant to restaurant, interiors are marked by
distinctive architectural and design elements which often incorporate dramatic
interior open spaces and extensive glass exteriors. The wall treatments,
lighting and decorations are typically vivid, unusual and, in some cases, highly
theatrical.
The following table sets forth the facilities the Company currently leases and
operates:
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- ------------- --------- -------------
Metropolitan Cafe(4) First Avenue 1982 4,000 180(50) 2006
(between 52nd and 53rd
Streets)
New York, New York
Gonzalez y Gonzalez Broadway 1989 6,000 250 2007
(between Houston and
Bleecker Streets)
New York, New York
America Union Station 1989 10,000 400(50) 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2017
Washington, D.C.
Sequoia South Street Seaport 1991 12,000 300(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2014
(between 76th and 77th
Streets) New York, New York
Columbus Bakery Columbus Avenue 1988 3,000 75 2012
(between 82nd and 83rd
Streets) New York, New York
3
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- ------------- --------- -------------
Bryant Park Grill & Bryant Park 1995 25,000 180(820) 2025
Cafe(5) New York, New York
Columbus Bakery First Avenue 1995 2,000 75 2006
(between 52nd and 53rd
Streets)
New York, New York
America(6) New York-New York Hotel 1997 20,000 450 2017(6)
and Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,500 260 2017(6)
Steakhouse(6) Hotel & Casino
Las Vegas, Nevada
Gonzalez y New York-New York 1997 2,000 120 2017(6)
Gonzalez(6) Hotel & Casino
Las Vegas, Nevada
Village Eateries New York-New York 1997 6,300 400(*) 2017(6)
(6)(7) Hotel & Casino
Las Vegas, Nevada
The Grill Room (8) World Financial Center 1997 10,000 250 2011
New York, New York
The Stage Deli Forum Shops 1997 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013
New York, New York
Thunder Grill Union Station 1999 10,000 500 2019
Washington, D.C.
Venetian Food Court Venetian Casino Resort 1999 5,000 300(*) 2014
Las Vegas, Nevada
Tsunami Grill Venetian Casino Resort 1999 13,000 300 2019
Las Vegas, Nevada
Lutece Venetian Casino Resort 1999 6,400 90(90) 2019
Las Vegas, Nevada
Vivid(9) Venetian Casino Resort 2001 9,700 250 2019
Las Vegas, Nevada
4
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- ------------- --------- -------------
V-Bar Venetian Casino Resort 2000 3,000 100 2015
Las Vegas, Nevada
Gallagher's Resorts Atlantic City 2005 6,280 196 2020
Steakhouse Hotel and Casino
Atlantic City, New Jersey
Luna Lounge Resorts Atlantic City 2005 2,270 114 2020
Hotel and Casino
Atlantic City, New Jersey
- ---------------
(1) Restaurants are, from time to time, renovated, renamed and/or converted
from or to managed or owned facilities. "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,
renamed and/or converted from or to a managed or owned facility 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) The landlord has the option to terminate the lease for this restaurant
at any time after October 1, 2003 with thirty (30) day's prior written
notice.
(5) The lease governing a substantial portion of the outside seating area of
this restaurant expires on April 30, 2012.
(6) Includes two five-year renewal options exercisable by the Company if
certain sales goals are achieved during the two year period prior to the
exercise of the renewal option. Under the America lease, the sales goal
is $6.0 million. Under the Gallagher's Steakhouse lease the sales goal
is $3.0 million. Under the lease for Gonzalez y Gonzalez and the Village
Eateries, the combined sales goal is $10.0 million. Each of the
restaurants is currently operating at a level substantially in excess of
the minimum sales level required to exercise the renewal option for each
respective restaurant.
(7) The Company operates eight small food court restaurants in the Villages
Eateries food court at the New York-New York Hotel & Casino. The Company
also operates that hotel's room service, banquet facilities and employee
cafeteria.
(8) The restaurant experienced damage in the attack on the World Trade
Center on September 11, 2001. In addition, substantial damage was
sustained by the World Financial Center in which the restaurant is
located. The restaurant closed on September 11, 2001 and reopened in
early December 2002.
5
(9) This bar changed its name from Venus to Vivid in January 2005.
(*) Represents common area seating.
The following table sets forth the facilities currently owned by a third party
and managed by the Company:
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- ---- -------- --------- ------------- --------- -------------
El Rio Grande Third Avenue 1987 4,000 160 2014
(4)(5) (between 38th and
39th Streets)
New York, New York
The Saloon(6) Neonopolis Center 2002 6,000 200 2014
at Fremont Street
Las Vegas, Nevada
Tampa Food Hard Rock Hotel and 2004 4,000 250(*) 2029
Court(4) Casino
Tampa, Florida
Hollywood Food Hard Rock Hotel and 2004 5,000 250(*) 2029
Court(4) Casino
Hollywood, Florida
- ---------------
(1) Restaurants are, from time to time, renovated, renamed and/or converted
from or to managed or owned facilities. "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,
renamed and/or converted from or to a managed or owned facility 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) Management fees earned by the Company are based on a percentage of cash
flow of the restaurant(s).
(5) The Company owns a 19% interest in the partnership that owns El Rio
Grande.
(6) The Company receives $7,000 per month for managing the restaurant.
(*) Represents common area seating.
6
Revenues from facilities managed by the Company are not included in the
Company's consolidated sales.
Restaurant Expansion
The Company anticipates opening its Gallagher's Steakhouse restaurant the
Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey on New Years
Eve 2005. The Company recently opened a separate bar in the Resorts Atlantic
City Hotel and Casino, Luna Lounge.
The opening of a new restaurant is invariably accompanied by substantial
pre-opening expenses and early operating losses associated with the training of
personnel, excess kitchen costs, costs of supervision and other expenses during
the pre-opening period and during a post-opening "shake out" period until
operations can be considered to be functioning normally. The amount of such
pre-opening expenses and early operating losses can generally be expected to
depend upon the size and complexity of the facility being opened. The Company
incurred no pre-opening expenses or early operating losses in fiscal 2005.
The Company's restaurants generally do not achieve substantial increases from
year to year in revenue, which the Company considers to be typical of the
restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease
expirations or other reasons, the Company would have to open additional
restaurant facilities or expand existing restaurants. There can be no assurance
that a restaurant will be successful after it is opened, particularly since in
many instances the Company does not operate its new restaurants under a trade
name currently used by the Company, thereby requiring new restaurants to
establish their own identity.
Apart from these agreements, the Company is not currently committed to any
projects. The Company may take advantage of opportunities it considers to be
favorable, when they occur, depending upon the availability of financing and
other factors.
Recent Restaurant Dispositions and Charges
In fiscal 2003, the Company determined that its restaurant, Lutece, located in
New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future undiscounted
cash flows related to the Company's long-lived fixed assets at Lutece, the
Company determined that impairment had occurred. To estimate the fair value of
such long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the future cash flows. The Company projected
continuing negative operating cash flow for the foreseeable future with no value
for subletting or assigning the lease for the premises. As a result, the Company
determined that there was no value to the long-lived fixed assets. The Company
had an investment of $667,000 in leasehold improvements, furniture fixtures and
equipment. The Company believed that these assets would have nominal value upon
disposal and recorded an impairment charge of $667,000 during fiscal 2003. Due
to continued weak sales, the Company closed Lutece during the second quarter of
2004. The Company recorded a net operating loss of $60,000 during the fiscal
year ended October 1, 2005 which is included in losses from discontinued
operations. In fiscal 2004, the Company also incurred a one-time charge of
$470,000 related to pension plan contributions required in connection with the
closing of Lutece which is payable monthly over a nine year period beginning May
17, 2004 and bears interest at a rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately
$850,000. The book value of inventory, fixed assets, intangible assets and
goodwill related to this entity was approximately $625,000. The Company recorded
a gain on the sale of approximately $225,000 during the first quarter of fiscal
2004.
7
The Company's restaurant Ernie's, located on the upper west side of Manhattan
opened in 1982. As a result of a steady decline in sales, the Company felt that
a new concept was needed at this location. The restaurant was closed June 16,
2003 and reopened in August 2003. Total conversion costs were approximately
$350,000. Sales at the new restaurant, La Rambla, failed to reach the level
sufficient to achieve the results the Company required. As a result, the Company
sold this restaurant on January 1, 2004 and realized a gain on the sale of this
restaurant of approximately $214,000. Net operating losses of $12,000 were
included in losses from discontinued operations for the fiscal year ended
October 1, 2005.
The Company's restaurant Jack Rose located on the west side of Manhattan has
experienced weak sales for several years. In addition, this restaurant did not
fit the Company's desired profile of being in a landmark destination location.
As a result, the Company sold this restaurant on February 23, 2004. The Company
realized a loss on the sale of this restaurant of $137,000 which was recorded
during the second quarter of fiscal 2004. Net operating losses of $19,000 were
included in losses from discontinued operations for the fiscal year ended
October 1, 2005.
The Company's restaurant, America, located in New York City has experienced
declining sales for several years. In March 2004, the Company entered into a new
lease for this restaurant at a significantly increased rent. The Company entered
into this lease with the belief that due to the location and the uniqueness of
the space the lease had value. On January 19, 2005, the Company signed a
definitive agreement for the sale of this restaurant which closed on March 15,
2005. The Company realized a pre-tax gain of $644,000 on the sale of this
restaurant. Net operating income of $47,000 was included in losses from
discontinued operations for the fiscal year ended October 1, 2005.
As a result of the above mentioned sales, the Company allocated $75,000 of
goodwill to these restaurants and reduced goodwill by this amount in fiscal
2005.
Restaurant Management
Each restaurant is managed by its own manager and has its own chef. Food
products and other supplies are purchased primarily from various unaffiliated
suppliers, in most cases by Company headquarters' personnel. The Company's
Columbus Bakery supplies bakery products to most of the Company's New York City
restaurants in addition to operating a retail bakery. The Company's Columbus
Bakery in Las Vegas supplies bakery products to most of the Company's Las Vegas
restaurants in addition to operating a wholesale bakery. Each of the Company's
restaurants has two or more assistant managers and sous chefs (assistant chefs).
Financial and management control is maintained at the corporate level through
the use of an automated data processing system that includes centralized
accounting and reporting.
Purchasing and Distribution
The Company strives to obtain quality menu ingredients, raw materials and other
supplies and services for its operations from reliable sources at competitive
prices. Substantially all menu items are prepared on each restaurant's premises
daily from scratch, using fresh ingredients. Each restaurant's management
determines the quantities of food and supplies required and orders the items
from local, regional and national suppliers on terms negotiated by the Company's
centralized purchasing staff. Restaurant-level inventories are maintained at a
minimum dollar-value level in relation to sales due to the relatively rapid
turnover of the perishable produce, poultry, meat, fish and dairy commodities
that are used in operations.
The Company attempts to negotiate short-term and long-term supply agreements
depending on market conditions and expected demand. However, the Company does
not contract for long periods of time for its
8
fresh commodities such as produce, poultry, meat, fish and dairy items and,
consequently, such commodities can be subject to unforeseen supply and cost
fluctuations. Independent foodservice distributors deliver most food and supply
items daily to restaurants. The financial impact of such supply agreements would
not have a material adverse effect on the Company's financial position.
Employees
At December 10, 2005, the Company employed 1,990 persons (including employees at
managed facilities), 1,448 of whom were full-time employees, 542 of whom were
part-time employees, 30 of whom were headquarters personnel, 202 of whom were
restaurant management personnel, 557 of whom were kitchen personnel and 1,201 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. The Company's employees are not covered by a
collective bargaining agreement.
Government Regulation
The Company is subject to various federal, state and local laws affecting its
business. Each restaurant is subject to licensing and regulation by a number of
governmental authorities that may include alcoholic beverage control, health,
sanitation, environmental, zoning and public safety agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failures to obtain the required licenses or approvals could delay or prevent the
development and openings of new restaurants, or could disrupt the operations of
existing restaurants.
Alcoholic beverage control regulations require each of our restaurants to apply
to a state authority and, in certain locations, county and municipal authorities
for licenses and permits to sell alcoholic beverages on the premises. Typically,
licenses must be renewed annually and may be subject to penalties, temporary
suspension or revocation for cause at any time. Alcoholic beverage control
regulations impact many aspects of the daily operations of our restaurants,
including the minimum ages of patrons and employees consuming or serving such
beverages; employee alcoholic beverages training and certification requirements;
hours of operation; advertising; wholesale purchasing and inventory control of
such beverages; seating of minors and the service of food within our bar areas;
and the storage and dispensing of alcoholic beverages. State and local
authorities in many jurisdictions routinely monitor compliance with alcoholic
beverage laws. The failure to receive or retain, or a delay in obtaining, a
liquor license for a particular restaurant could adversely affect the Company's
ability to obtain such licenses elsewhere.
The Company is subject to "dram-shop" statutes in most of the states in which it
has operations, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully served
alcoholic beverages to such person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance. A
settlement or judgment against the Company under a "dram-shop" statute in excess
of liability coverage could have a material adverse effect on operations.
Various federal and state labor laws govern the Company's operations and its
relationship with employees, including such matters as minimum wages, breaks,
overtime, fringe benefits, safety, working conditions and citizenship
requirements. The Company is also subject to the regulations of the Immigration
and Naturalization Service (INS). If employees of the Company do not meet
federal citizenship or residency requirements, this could lead to a disruption
in the Company's work force. Significant government-imposed increases in minimum
wages, paid leaves of absence and mandated
9
health benefits, or increased tax reporting, assessment or payment requirements
related to employees who receive gratuities could be detrimental to the
profitability of the Company.
The Company's facilities must comply with the applicable requirements of the
Americans With Disabilities Act of 1990 ("ADA") and related state statutes. The
ADA prohibits discrimination on the basis of disability with respect to public
accommodations and employment. Under the ADA and related state laws, when
constructing new restaurants or undertaking significant remodeling of existing
restaurants, the Company must make them more readily accessible to disabled
persons.
The New York State Liquor Authority must approve any transaction in which a
shareholder of the licensee increases his holdings to 10% or more of the
outstanding capital stock of the licensee and any transaction involving 10% or
more of the outstanding capital stock of the licensee.
Seasonal Nature Of Business
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 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 in New York and Sequoia in Washington, D.C. (the
Company's largest restaurants) and the Company's outdoor cafes. However, even
during summer months these facilities can be adversely affected by unusually
cool or rainy weather conditions. The Company's facilities in Las Vegas
generally operate on a more consistent basis through the year.
Terrorism and International Unrest
The terrorist attacks on the World Trade Center in New York and the Pentagon in
Washington, D.C. on September 11, 2001 had a material adverse effect on the
Company's revenues. As a result of the attacks, one Company restaurant, The
Grill Room, located at 2 World Financial Center, which is adjacent to the World
Trade Center, experienced some damage. The Grill Room was closed from September
11, 2001 and reopened in early December 2002.
The Company's restaurants in New York, Las Vegas, Washington D.C. and Florida
benefit from tourist traffic. Though the Las Vegas market has shown resiliency,
the sluggish economy and the lingering effects of September 11, 2001 have had an
adverse effect on the Company's restaurants. Recovery depends upon a general
improvement in economic conditions and the public's willingness and inclination
to resume vacation and convention travel. Additional acts of terrorism in the
United States or substantial international unrest may have a material adverse
effect on the Company's business and revenues.
Forward Looking Statements and Risk Factors
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 "Item 1. Business" and "Item 7.
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 discussed below.
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
10
them do not succeed. Even successful restaurants can rapidly 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 such patronage as they
currently enjoy 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.
To achieve significant increases in revenue or to replace revenue of restaurants
which experience declining popularity or which close because of lease
expirations or other reasons, the Company would have to open additional
restaurant facilities. The opening of new restaurants is subject to a wide
variety of uncertainties, including the ability to negotiate favorable lease
provisions, the location of the restaurant, the development of a menu and
concept that appeals to consumers and the availability of skilled restaurant
managers. The acquisition or construction of new restaurants also 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. If the Company were to identify a favorable restaurant opportunity,
there is no assurance that the required financing would be available.
Item 2. Properties
- ------- ----------
The Company's restaurant facilities and the Company's 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 (including leases for managed restaurants) have
terms (including any available renewal options) expiring as follows:
Years Lease Number of
Terms Expire Facilities
------------ ----------
2006-2010 7
2011-2015 8
2016-2020 11
2021-2025 1
2026-2030 2
The Company's executive, administrative and clerical offices are located in
approximately 8,500 square feet of office space at 85 Fifth Avenue, New York,
New York. In October 2003 the Company's landlord for this property commenced an
action against the Company stating that the Company failed to validly exercise
its five-year renewal option to extend the lease through October 2008. The
Company currently occupies this property pending the result of litigation with
its landlord. See "Item 3. Legal Proceedings" for a discussion regarding this
litigation.
The Company's lease for office space related to its Washington, D.C. catering
operations expires in 2012.
For information concerning the Company's future minimum rental commitments under
non-cancelable operating leases, see Note 8 of Notes to Consolidated Financial
Statements.
See also "Item 1. Business - Overview" for a list of restaurant properties.
11
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 workers' 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. The Company does not believe that any of such
suits will have a materially adverse effect upon the Company, its financial
condition or operations.
In October 2003, the Company's landlord for its executive, administrative and
clerical offices located in New York, New York commenced an action against the
Company in the Supreme Court, New York County asserting the Company had failed
to validly exercise its option with respect to the premises at issue and that
the Landlord was entitled to immediate and exclusive possession of the premises.
The Company answered and asserted affirmative defenses and counterclaims. By an
order dated May 25, 2004, the court denied the landlord's motion for summary
judgment on its complaint while granting, in part, the landlord's motion to
dismiss the Company's affirmative defenses and counterclaims. Both the landlord
and the Company appealed from the May 25, 2004 order, but no decision on the
appeals has been issued. Pending the outcome of this litigation, the Company
remains in possession of the premises.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
Executive Officers of the Registrant
- ------------------------------------
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 62 Chairman, President and Chief
Executive Officer
Vincent Pascal 62 Senior Vice President
Robert Towers 58 Executive Vice President, Chief
Operating Officer and Treasurer
Paul Gordon 54 Senior Vice President
Robert Stewart 49 Chief Financial Officer
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 the President and a director of the Company since its
inception in January 1983. During the past five years, Mr. Weinstein has been an
officer, director and 25% shareholder of Easy Diners, Inc., RSWB Corp. and BSWR
Corp. (since 1998). Mr. Weinstein is the owner of 24% of the membership
interests in each of Dockeast, LLC and Dockwest, LLC. These companies operate
four restaurants in New York City, and none of these companies is a parent,
subsidiary or other affiliate of the Company. Mr. Weinstein spends substantially
all of his business time on Company-related matters.
12
Vincent Pascal was elected Vice President, Assistant Secretary and a director of
the Company in October 1985. Mr. Pascal became a Senior Vice President in 2001.
Robert Towers has been employed by the Company since November 1983 and was
elected Vice President, Treasurer and a director in March 1987. Mr. Towers
became an Executive Vice President and Chief Operating Officer in 2001.
Paul Gordon has been employed by the Company since 1983 and was elected as a
director in November 1996 and a Senior Vice President in 2001. Mr. Gordon is the
manager of the Company's Las Vegas operations. Prior to assuming that role in
1996, Mr. Gordon was the manager of the Company's operations in Washington, D.C.
since 1989.
Robert Stewart has been employed by the Company since June 2002 and was elected
Chief Financial Officer effective as of June 24, 2002. For the three years prior
to joining the Company, Mr. Stewart was a Chief Financial Officer and Executive
Vice President at Fortis Capital Holdings. For eleven years prior to joining
Fortis Capital Holdings, Mr. Stewart held senior financial and audit positions
in Skandinaviska Enskilda Banken in their New York, London and Stockholm
offices.
13
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 under the symbol "ARKR." The high and low
sale prices for the Common Stock from September 27, 2003 through September 30,
2005 are as follows:
Calendar 2003 High Low
------------- ---- ---
Fourth Quarter $ 14.35 $ 11.15
Calendar 2004
-------------
First Quarter 17.70 13.50
Second Quarter 23.55 17.01
Third Quarter 26.11 21.62
Fourth Quarter 39.22 27.07
Calendar 2005
-------------
First Quarter 41.88 29.61
Second Quarter 32.80 25.52
Third Quarter 34.59 27.26
Dividends
A quarterly cash dividend in the amount of $0.35 per share was declared on
October 12, 2004. Subsequent to October 12, 2004, quarterly cash dividends in
the amount of $0.35 per share were declared on January 12, April 12, July 12 and
October 11, 2005. Prior to this, the Company had not paid any cash dividends
since its inception. The Company intends to continue to pay such quarterly cash
dividend for the foreseeable future, however, the payment of future dividends is
at the discretion of the Company's Board of Directors and is based on future
earnings, cash flow, financial condition, capital requirements, changes in U.S.
taxation and other relevant factors.
Number of Shareholders
As of December 9, 2005, there were 45 holders of record of the Company's Common
Stock, $.01 par value. This does not include the number of persons whose stock
is in nominee or "street name" accounts through brokers.
14
Item 6. Selected Consolidated Financial Data
- ------- ------------------------------------
The following table sets forth certain financial data for the fiscal
years ended in 2001 through 2005. During fiscal year 2005, the Company sold one
of its restaurants which was considered held for sale in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"), during part of fiscal
year 2004 and part of fiscal year 2005. During fiscal year 2004, the Company
sold three of its restaurants and closed one restaurant. The operations of these
restaurants have been presented as discontinued operations for the 2004 and 2005
fiscal years, and the Company has reclassified its statements of operations data
for the prior periods presented below, in accordance with FAS 144. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto beginning at page F-1.
15
Years Ended
------------------------------------------------------------------------------
October 1, October 2, September 27, September 28, September 29,
2005 2004 2003 2002 2001
(In thousands, except per share data)
(a) (b)
OPERATING DATA:
Total revenues $ 115,577 $ 115,698 $ 102,733 $ 101,625 $ 106,844
Cost and expenses (107,325) (106,081) (96,980) (95,153) (101,198)
Operating income 8,252 9,617 5,753 6,472 5,646
Other income (expense), net 747 543 403 (607) (2,223)
Income from continuing operations
before provision for income taxes 8,999 10,160 6,156 5,865 3,423
Provision for income taxes 2,782 2,804 1,486 1,474 1,123
Income from continuing operations 6,217 7,356 4,670 4,391 2,300
Income (loss) from discontinued
operations before provision for
income taxes 525 (965) (1,781) (217) (13,614)
Provision (benefit) for income taxes 163 (266) (430) (55) (4,466)
Income from discontinued operations 362 (699) (1,351) (162) (9,148)
NET INCOME (LOSS) 6,579 6,657 3,319 4,229 (6,848)
NET INCOME (LOSS) PER SHARE:
Continuing operations basic $ 1.81 $ 2.22 $ 1.46 $ 1.38 $ 0.72
Discontinued operations basic $ 0.11 $ (0.21) $ (0.42) $ (0.05) $ (2.88)
------------ ------------ ------------ ------------ ------------
Net basic $ 1.92 $ 2.01 $ 1.04 $ 1.33 $ (2.16)
Continuing operations diluted $ 1.75 $ 2.13 $ 1.45 $ 1.37 $ 0.72
Discontinued operations diluted $ 0.10 $ (0.20) $ (0.42) $ (0.05) $ (2.88)
------------ ------------ ------------ ------------ ------------
Net diluted $ 1.85 $ 1.93 $ 1.03 $ 1.32 $ (2.16)
Weighted average number of shares
Basic 3,436 3,305 3,181 3,181 3,181
Diluted 3,555 3,444 3,213 3,206 3,186
BALANCE SHEET DATA (end of period):
Total assets $ 47,165 $ 44,894 $ 43,635 $ 47,960 $ 53,091
Working capital (deficit) 4,299 1,893 (4,802) (7,990) (6,569)
Long-term debt -- -- 7,226 9,547 21,700
Shareholders' equity 37,413 34,200 24,826 21,446 17,173
Shareholders' equity per share 10.89 10.35 7.80 6.74 5.40
Facilities in operations--end of year,
Owned 44 45 40 40 46
Managed 4 3 1 1 1
16
(a) Fiscal 2003 income was adversely affected by an asset impairment
charge of $667,000 related to the fixed assets of a restaurant, Lutece,
located in New York.
(b)Fiscal 2001 income was adversely affected by an asset impairment
charge of $10,045,000 related to the Aladdin operations and a charge of
$935,000 due to the cancellation of a development project.
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 Company
reports fiscal years under a 52/53-week format. This reporting method is used by
many companies in the hospitality industry and is meant to improve year-to-year
comparisons of operating results. Under this method, certain years will contain
53 weeks. The fiscal years ended September 27, 2003 and October 1, 2005 each
included 52 weeks. The fiscal year ended October 2, 2004 included 53 weeks.
Overview
The Company has reclassified its statements of operations data for the prior
periods presented below, in accordance with FAS 144, as a result of the sale of
three of the Company's restaurants and the closure of one restaurant during the
fiscal year ended October 2, 2004 and the sale of another restaurant during the
fiscal year ended October 1, 2005. The operations of these restaurants have been
presented as discontinued operations for the fiscal years ended October 2, 2004
and October 1, 2005. See "Item 1 -Recent Restaurant Dispositions and Charges",
"Item 7 - Recent Restaurant Dispositions" and Note 2 of Notes to Consolidated
Financial Statements.
Revenues
Total revenues at restaurants owned by the Company decreased by 1.1% from fiscal
2004 to fiscal 2005 and increased by 12.4% from fiscal 2003 to fiscal 2004.
Same store sales decreased 0.9%, or $989,000, on a Company-wide basis from
fiscal 2004 to fiscal 2005. This decrease was primarily due to the fact that
fiscal 2004 contained an extra week of sales as opposed to fiscal 2005,
resulting in a 4.0%, or $2,678,000, decrease in same store sales at the
Company's Las Vegas restaurants, a 3.6%, or $1,122,000, increase in same store
sales at the Company's New York restaurants and a 3.2%, or $567,000, increase in
same store sales at the Company's Washington D.C. restaurants. If the
fifty-third week of fiscal 2004 were excluded from same store sales, the result
would be a 1.2%, or $1,381,000, increase in same store sales on a Company-wide
basis, a 2.0%, or $1,312,000, decrease in same store sales at the Company's Las
Vegas restaurants, a 5.7%, or $1,791,000, increase in same store sales at the
Company's New York restaurants and a 5.3%, or $902,000, increase in same store
sales at the Company's Washington D.C. restaurants. The increases in New York
and Washington D.C. were principally due to a general improvement in economic
conditions and the public's willingness and inclination to resume vacation and
convention travel.
During the fourth quarter of 2002 the Company abandoned its restaurant and food
court operations at the Desert Passage, the retail complex at the Aladdin Resort
& Casino in Las Vegas. From fiscal 2002 to
17
fiscal 2001 sales decreased at this location from $4,999,000 to $2,853,000, or
42.9%, resulting in the Company's decision to abandon these operations.
Of the $5,219,000 decrease in revenues from fiscal 2001 to fiscal 2002,
$3,282,000 is attributable to the year long closure of the Grill Room restaurant
located in 2 World Financial Center, an office building adjacent to the World
Trade Center site. This restaurant was damaged in the September 11, 2001 attack
and reopened in early fiscal 2003. A $256,000 increase in sales is attributable
to the opening of the Saloon at the Neonopolis Center in downtown Las Vegas.
Other operating income, which consists of the sale of merchandise at various
restaurants, management fee income and door sales were $1,826,000 in fiscal
2005, $850,000 in fiscal 2004 and $679,000 in fiscal 2003.
Costs and Expenses
Food and beverage cost of sales as a percentage of total revenue was 25.1% in
fiscal 2005, 25.5% in fiscal 2004 and 24.7% in fiscal 2003.
Total costs and expenses increased by $1,244,000, or 1.2%, from fiscal 2004 to
fiscal 2005. The increase in the minimum wage in New York and Washington, D.C.,
the cost of compliance with the Sarbanes-Oxley Act and increased energy costs
contributed to this increase.
Total costs and expenses increased by $9,101,000, or 9.4%, from fiscal 2003 to
fiscal 2004. Increases in food costs, rent and payroll, as a result of the
increase in total revenues, contributed to this increase. Sales increases in
restaurants where the Company pays a percentage rent resulted in an increase in
percentage rent of $374,000 during fiscal 2004 compared to fiscal 2003. Other
operating costs and expenses also increased in fiscal 2004 due to the increase
in total revenue and a one time charge of $270,000 used to pay for casino
entertainment tax liability. The Company had previously thought that certain of
its operations at the Venetian Hotel Resort Casino were exempt from casino
entertainment tax due to the fact that such operations were not on the casino
floor. As subsequent tax ruling by tax authorities determined that such
operations were subject to casino entertainment tax and the Company determined
to include such charge in other operating costs and expenses.
Payroll expenses as a percentage of total revenues was 31.3% in fiscal 2005
compared to 31.2% in fiscal 2004 and 32.3% in fiscal 2003. Payroll expense was
$36,212,000, $36,045,000 and $33,176,000 in fiscal 2005, 2004 and 2003,
respectively. In fiscal 2003, the Company had aggressively adapted its cost
structure in response to lower sales expectations following September 11th. Due
to the increase in sales during fiscal 2004, the Company had increased its
payroll expenses incrementally. In fiscal 2005, the increase of the minimum wage
in New York and Washington, D.C. resulted in an increase in payroll expenses.
The Company continually evaluates its payroll expenses as they relate to sales.
No pre-opening expenses and early operating losses were incurred during fiscal
2005, 2004 or 2003. The Company did not open any new restaurants during fiscal
2005, 2004 and 2003. The Company typically incurs significant pre-opening
expenses in connection with its new restaurants that 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 total revenue, were 6.3%
in fiscal 2005, 5.6% in fiscal 2004 and 6.5% in fiscal 2003. The decrease in
these expenses as a percentage of total revenue during fiscal 2004 is primarily
due to increased total revenue during this period.
18
The Company managed two restaurants it did not own (The Saloon and El Rio
Grande) and also managed the Tampa and Hollywood Florida food court operations
at October 1, 2005. The Company managed two restaurants it did not own (The
Saloon and El Rio Grande) at October 2, 2004. The Company managed one restaurant
it did not own (El Rio Grande) at September 27, 2003. Sales of El Rio Grande,
which are not included in consolidated sales, were $3,262,000 in fiscal 2005,
$2,786,000 in fiscal 2004 and $2,765,000 in fiscal 2003. The Company's lease of
The Saloon was converted into a management agreement effective as of August 22,
2004, whereby the Company receives a management fee of $7,000 per month
regardless of the results of operations of this restaurant. During fiscal 2004,
the Company entered into agreements to manage 11 fast food restaurants located
in the Hard Rock Casinos in Hollywood and Tampa, Florida. Sales from these
operations totaled $8,843,000 during the 2005 fiscal year.
Interest expense was $25,000 in fiscal 2005, $190,000 in fiscal 2004 and
$732,000 in fiscal 2003. The significant decreases during these periods was due
to lower outstanding borrowings on the Company's credit facility and the benefit
from rate decreases in the prime-borrowing rate. As of October 1, 2005, the
Company had no borrowings on its credit facility. Interest income was $101,000
in fiscal 2005, $138,000 in fiscal 2004 and $162,000 in fiscal 2003.
Other income, which generally consists of purchasing service fees and other
income at various restaurants, was $671,000, $595,000 and $973,000 for fiscal
2005, 2004 and 2003, respectively. Other income was impacted during fiscal 2003
by the Company's receipt of $508,000 in World Trade Center Grants for four
restaurants located in downtown New York that were adversely impacted by the
September 11, 2001 terrorist attacks.
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 operating in the District of Columbia. Accordingly, the Company's
overall effective tax rate has varied depending on the level of losses incurred
at individual subsidiaries. During fiscal 2002 the Company abandoned its
restaurant and food court operations at the Desert Passage, the retail complex
at the Aladdin Resort & Casino in Las Vegas. In fiscal 2002, the Company was
able to utilize the deferred tax asset created in fiscal 2001, by the impairment
of these operations. During the years ended October 2, 2004 and October 1, 2005,
the Company decreased its allowance for the utilization of the deferred tax
asset arising from state and local operating loss carryforwards by $395,000 and
$125,000 in such years based on the merger of certain unprofitable subsidiaries
into profitable ones.
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 and the utilization of state and
local net operating loss carry forwards. Nevada has no state income tax and
other states in which the Company operates have income tax rates substantially
lower in comparison to New York. In order to utilize more effectively tax loss
carry forwards at restaurants that were unprofitable, the Company has merged
certain profitable subsidiaries with certain loss subsidiaries.
19
The Revenue Reconciliation Act of 1993 provides tax credits to the Company for
FICA taxes paid by the Company on tip income of restaurant service personnel.
The net benefit to the Company was $779,000 in fiscal 2005, $591,000 in fiscal
2004 and $132,000 in fiscal 2003.
During fiscal 2002, the Company and the Internal Revenue Service finalized the
adjustments to the Company's Federal income tax returns for fiscal years 1995
through 1998. The settlement did not have a material effect on the Company's
consolidated financial statements. During fiscal 2006, the Company and the
Internal Revenue Service finalized the adjustments to the Company's Federal
income tax returns for fiscal years 1999 through 2004. This settlement did not
have a material effect on the Company's consolidated financial statements.
Liquidity and Sources of Capital
The Company's primary source of capital has been cash provided by operations and
funds available from its main bank, Bank Leumi USA. The Company from time to
time also utilizes equipment financing in connection with the construction of a
restaurant and seller financing in connection with the acquisition of a
restaurant. The Company utilizes capital primarily to fund the cost of
developing and opening new restaurants, acquiring existing restaurants owned by
others and remodeling existing restaurants owned by the Company.
The net cash used in investing activities in fiscal 2005 of ($3,836,000) was
primarily used for the replacement of fixed assets at existing restaurants and
the construction of a restaurant and bar in Atlantic City, New Jersey. The net
cash used in investing activities in fiscal 2004 of ($1,336,000) was primarily
used for the replacement of fixed assets at existing restaurants. The net cash
used in investing activities in fiscal 2003 of ($1,434,000) was used for the
expansion of an existing restaurant in Las Vegas and for the replacement of
fixed assets at existing restaurants.
The net cash used in financing activities in fiscal 2005 ($4,397,000), was
principally used for the payment of dividends. The net cash used in financing
activities in fiscal 2004 ($5,106,000) and fiscal 2003 ($8,356,000) was
principally due to repayments of long-term debt on the Company's main credit
facility in excess of borrowings on such facility.
The Company had a working capital surplus of $4,299,000 at October 1, 2005 as
compared to a working capital surplus of $1,893,000 at October 2, 2004.
The Company's Revolving Credit and Term Loan Facility (the "Facility") with its
main bank (Bank Leumi USA), which included a $8,500,000 credit line to finance
the development and construction of new restaurants and for working capital
purposes at the Company's existing restaurants, matured on March 12, 2005. The
Company does not currently plan to enter into another credit facility and
expects required cash to be provided by operations. As of October 1, 2005, the
Company had no borrowings on its credit facility. The Facility also includes a
$500,000 Letter of Credit Facility for use in lieu of lease security deposits.
The Company has delivered $253,000 in irrevocable letters of credit on this
Facility at October 1, 2005. The Company generally is 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 Facility 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 Facility.
20
In April 2000, the Company borrowed $1,570,000 from its main bank at an interest
rate of 8.8% to refinance the purchase of various restaurant equipment at the
Venetian. The note which was payable in 60 equal monthly installments through
May 2005, was secured by such restaurant equipment. At October 1, 2005 the
Company had nothing outstanding on this facility.
The Company entered into a sale and leaseback agreement with GE Capital for
$1,652,000 in November 2000 to refinance the purchase of various restaurant
equipment at its food and beverage facilities in a hotel and casino in Las
Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable in 48
equal monthly installments of $32,000 until maturity in November 2004 at which
time the Company had an option to purchase the equipment for $519,000 or extend
the lease for an additional 12 months at the same monthly payment until maturity
in November 2005 and repurchase the equipment at such time for $165,000. In
November 2004, the Company chose to extend the lease for an additional 12
months.
The Company originally accounted for this agreement as an operating lease and
did not record the assets or the lease liability in the financial statements.
During the year ended September 29, 2001, the Company recorded the entire amount
payable under the lease as a liability of $1,600,000 based on the anticipated
abandonment of the Aladdin operations. In 2002, the operations at the Aladdin
were abandoned and at October 1, 2005 $117,000 remained accrued in other current
liabilities representing future operating lease payments.
A quarterly cash dividend in the amount of $0.35 per share was declared on
October 12, 2004. Subsequent to October 12, 2004, quarterly cash dividends in
the amount of $0.35 per share were declared on January 12, April 12, July 12 and
October 11, 2005. Prior to this, the Company had not paid any cash dividends
since its inception. The Company intends to continue to pay such quarterly cash
dividend for the foreseeable future, however, the payment of future dividends is
at the discretion of the Company's Board of Directors and is based on future
earnings, cash flow, financial condition, capital requirements, changes in U.S.
taxation and other relevant factors.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided:
21
Payments Due by Period
========================================================================
Within After 5
Total 1 year 2-3 years 4-5 years years
(in thousands of dollars)
Contractual Obligations:
Operating Leases $ 58,528 $ 7,631 $ 12,348 $ 10,443 $ 28,106
------------ ------------ ------------ ------------ ------------
Total Contractual Cash Obligations $ 58,528 $ 7,631 $ 12,348 $ 10,443 $ 28,106
============ ============ ============ ============ ============
Amount of Commitment Expiration Per Period
========================================================================
Within After 5
Total 1 year 2-3 years 4-5 years years
(in thousands of dollars)
Other Commercial Commitments:
Letters of Credit $ 253 $ -- $ 253 $ -- $ --
------------ ------------ ------------ ------------ ------------
Total Commercial Commitments $ 253 $ -- $ 253 $ -- $ --
============ ============ ============ ============ ============
Restaurant Expansion
In December 2005, the Company opened a restaurant, Gallagher's Steakhouse, and a
bar, Luna Lounge, at the Resorts Atlantic City Hotel and Casino in Atlantic
City, New Jersey.
Recent Restaurant Dispositions and Charges
In fiscal 2003, the Company determined that its restaurant, Lutece, located in
New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future undiscounted
cash flows related to the Company's long-lived fixed assets at Lutece, the
Company determined that impairment had occurred. To estimate the fair value of
such long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the future cash flows. The Company projected
continuing negative operating cash flow for the foreseeable future with no value
for subletting or assigning the lease for the premises. As a result, the Company
determined that there was no value to the long-lived fixed assets. The Company
had an investment of $667,000 in leasehold improvements, furniture fixtures and
equipment. The Company believed that these assets would have nominal value upon
disposal and recorded an impairment charge of $667,000 during fiscal 2003. Due
to continued weak sales, the Company closed Lutece during the second quarter of
2004. The Company recorded a net operating loss of $60,000 during the fiscal
year ended October 1, 2005 which is included in losses from discontinued
operations. In fiscal 2004, the Company also incurred a one-time charge of
$470,000 related to pension plan contributions required in connection with the
closing of Lutece which is payable monthly over a nine year period beginning May
17, 2004 and bears interest at a rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately
$850,000. The book value of inventory, fixed assets, intangible assets and
goodwill related to this entity was approximately
22
$625,000. The Company recorded a gain on the sale of approximately $225,000
during the first quarter of fiscal 2004.
The Company's restaurant Ernie's, located on the upper west side of Manhattan
opened in 1982. As a result of a steady decline in sales, the Company felt that
a new concept was needed at this location. The restaurant was closed June 16,
2003 and reopened in August 2003. Total conversion costs were approximately
$350,000. Sales at the new restaurant, La Rambla, failed to reach the level
sufficient to achieve the results the Company required. As a result, the Company
sold this restaurant on January 1, 2004 and realized a gain on the sale of this
restaurant of approximately $214,000. Net operating losses of $12,000 were
included in losses from discontinued operations for the fiscal year ended
October 1, 2005.
The Company's restaurant Jack Rose located on the west side of Manhattan has
experienced weak sales for several years. In addition, this restaurant did not
fit the Company's desired profile of being in a landmark destination location.
As a result, the Company sold this restaurant on February 23, 2004. The Company
realized a loss on the sale of this restaurant of $137,000 which was recorded
during the second quarter of fiscal 2004. Net operating losses of $19,000 were
included in losses from discontinued operations for the fiscal year ended
October 1, 2005.
The Company's restaurant, America, located in New York City has experienced
declining sales for several years. In March 2004, the Company entered into a new
lease for this restaurant at a significantly increased rent. The Company entered
into this lease with the belief that due to the location and the uniqueness of
the space the lease had value. On January 19, 2005, the Company signed a
definitive agreement for the sale of this restaurant which closed on March 15,
2005. The Company realized a pre-tax gain of $644,000 on the sale of this
restaurant. Net operating income of $47,000 was included in losses from
discontinued operations for the fiscal year ended October 1, 2005.
Critical Accounting Policies
Financial Reporting Release No. 60, published by the SEC, recommends that all
companies include a discussion of critical accounting policies used in the
preparation of their financial statements. The Company's significant accounting
policies are more fully described in Note 1 to the Company's consolidated
financial statements. While all these significant accounting policies impact its
financial condition and results of operations, the Company views certain of
these policies as critical. Policies determined to be critical are those
policies that have the most significant impact on the Company's consolidated
financial statements and require management to use a greater degree of judgment
and estimates. Actual results may differ from those estimates.
The Company believes that given current facts and circumstances, it is unlikely
that applying any other reasonable judgments or estimate methodologies would
cause a material effect on the Company's consolidated results of operations,
financial position or cash flows for the periods presented in this report.
Below are listed certain policies that management believes are critical:
Use of Estimates
The preparation of financial statements requires the application of certain
accounting policies, which may require the Company to make estimates and
assumptions of future events. In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities, which are not readily apparent from other
sources. The primary estimates underlying the
23
Company's financial statements include allowances for potential bad debts on
accounts and notes receivable, the useful lives and recoverability of its
assets, such as property and intangibles, fair values of financial instruments,
the realizable value of its tax assets and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the
circumstances and actual results could differ from those estimates. Although
management does not believe that any change in those assumptions in the near
term would have a material effect on the Company's consolidated financial
position or the results of operation, differences in actual results could be
material to the financial statements.
Long-Lived Assets
The Company annually assesses any impairment in value of long-lived assets to be
held and used. The Company evaluates the possibility of impairment by comparing
anticipated undiscounted cash flows to the carrying amount of the related
long-lived assets. If such cash flows are less than carrying value the Company
then reduces the asset to its fair value. Fair value is generally calculated
using discounted cash flows. Various factors such as sales growth and operating
margins and proceeds from a sale are part of this analysis. Future results could
differ from the Company's projections with a resulting adjustment to income in
such period.
Leases
The Company is obligated under various lease agreements for certain restaurants.
The Company recognizes rent expense on a straight-line basis over the expected
lease term, including option periods as described below. Within the provisions
of certain leases there are escalations in payments over the base lease term, as
well as renewal periods. The effects of the escalations have been reflected in
rent expense on a straight-line basis over the expected lease term, which
includes option periods when it is deemed to be reasonably assured that the
Company would incur an economic penalty for not exercising the option.
Percentage rent expense is generally based upon sales levels and is expensed as
incurred. Certain leases include both base rent and percentage rent. The Company
records rent expense on these leases based upon reasonably assured sales levels.
The consolidated financial statements reflect the same lease terms for
amortizing leasehold improvements as were used in calculating straight-line rent
expense for each restaurant. The judgments of the Company may produce materially
different amounts of amortization and rent expense than would be reported if
different lease terms were used.
Deferred Income Tax Valuation Allowance
The Company provides such allowance due to uncertainty that some of the deferred
tax amounts may not be realized. Certain items, such as state and local tax loss
carry forwards, are dependent on future earnings or the availability of tax
strategies. Future results could require an increase or decrease in the
valuation allowance and a resulting adjustment to income in such period.
Accounting for Goodwill and Other Intangible Assets
During 2001, the FASB issued FAS 142, which requires that for the Company,
effective September 28, 2002, goodwill, including the goodwill included in the
carrying value of investments accounted for using the equity method of
accounting, and certain other intangible assets deemed to have an indefinite
useful life, cease amortizing. FAS 142 requires that goodwill and certain
intangible assets be assessed for impairment using fair value measurement
techniques. Specifically, goodwill impairment is determined using a two-step
process. The first step of the goodwill impairment test is used to identify
potential impairment by comparing the fair value of the reporting unit (the
Company is being treated as one
24
reporting unit) with its net book value (or carrying amount), including
goodwill. If the fair value of the reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not impaired and the second step of
the impairment test is unnecessary. If the carrying amount of the reporting unit
exceeds its fair value, the second step of the goodwill impairment test is
performed to measure the amount of impairment loss, if any. The second step of
the goodwill impairment test compares the implied fair value of the reporting
unit's goodwill with the carrying amount of that goodwill. If the carrying
amount of the reporting unit's goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same manner as the
amount of goodwill recognized in a business combination. That is, the fair value
of the reporting unit is allocated to all of the assets and liabilities of that
unit (including any unrecognized intangible assets) as if the reporting unit had
been acquired in a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. The impairment test
for other intangible assets consists of a comparison of the fair value of the
intangible asset with its carrying value. If the carrying value of the
intangible asset exceeds its fair value, an impairment loss is recognized in an
amount equal to that excess.
Determining the fair value of the reporting unit under the first step of the
goodwill impairment test and determining the fair value of individual assets and
liabilities of the reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is judgmental in nature
and often involves the use of significant estimates and assumptions. Similarly,
estimates and assumptions are used in determining the fair value of other
intangible assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and also the
magnitude of any such charge. To assist in the process of determining goodwill
impairment, the Company obtains appraisals from independent valuation firms. In
addition to the use of independent valuation firms, the Company performs
internal valuation analyses and considers other market information that is
publicly available. Estimates of fair value are primarily determined using
discounted cash flows and market comparisons and recent transactions. These
approaches use significant estimates and assumptions including projected future
cash flows (including timing), discount rate reflecting the risk inherent in
future cash flows, perpetual growth rate, determination of appropriate market
comparables and the determination of whether a premium or discount should be
applied to comparables. Based on the above policy no impairment charges were
recorded during the fiscal years ended 2005, 2004 and 2003.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(R), "Accounting for Stock-Based Compensation." SFAS No. 123 (R) establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. SFAS No. 123 (R) focuses primarily on
accounting for transactions in which an entity obtains employee services through
the issuance of stock options and other share-based payment transactions. SFAS
No. 123 (R) requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services are
performed. Prior to SFAS No. 123 (R), only certain pro forma disclosures of fair
value were required. SFAS No. 123 (R) shall be effective for public entities
that do not file as small business issuers as of the beginning of the first
annual reporting period that begins after December 15, 2005. SFAS No. 123 (R)
shall be effective for the Company beginning in its first quarter of fiscal
2006. The Company has not determined if the adoption of this new accounting
pronouncement is expected to have a material impact on the financial statements
of the Company for fiscal 2006.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
None.
25
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The Company's Consolidated Financial Statements are included in this report
immediately following Part IV.
Item 9. Changes in and Disagreements With
- ------- Accountants on Accounting and Financial Disclosure
--------------------------------------------------
Incorporated herein by this reference is the discussion under Item 4 of the
Company's Current Report on Form 8-K, filed on January 15, 2004, and Item 4 of
the Company's Current Report on Form 8-K/A, filed on January 16, 2004, reporting
a change in certifying accountants. There were no disagreements related to that
change in accountants.
Item 9A.
- --------
Controls and Procedures; Internal Control over Financial Reporting
Evaluation of disclosure controls and procedures. Based on their evaluation, the
Company's principal executive officer and principal financial officer have
concluded that the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) are effective as of October 1, 2005 to ensure that
information required to be disclosed by the Company in reports that the Company
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Changes in internal control over financial reporting. There were no changes in
the Company's internal control over financial reporting during the fourth
quarter of fiscal year 2005 that materially affected or are reasonably likely to
materially affect the Company's internal control over financial reporting.
26
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
See Part I, Item 4. "Executive Officers of the Registrant." Other information
relating to the directors and executive officers of the Company is incorporated
by reference to the definitive proxy statement for the Company's 2006 annual
meeting of stockholders to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to Regulation 14A no later than 120 days after the end of
the fiscal year covered by this form (the "Proxy Statement"). Information
relating to compliance with Section 16(a) of the Exchange Act is incorporated by
reference to the Proxy Statement.
Code of Ethics.
The Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. The Company will provide
any person without charge, upon request, a copy of such code of ethics by
mailing the request to the Company at 85 Fifth Avenue, New York, NY 10003,
Attention: Robert Towers.
Audit Committee Financial Expert
The Company's Board of Directors has determined that Marcia Allen, Director, is
the Company's Audit Committee Financial Expert, as defined under Section 407 of
the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC in
furtherance of Section 407. Ms. Allen is independent of management. Other
information regarding the Audit Committee is incorporated by reference from the
Proxy Statement.
Item 11. Executive Compensation
- -------- ----------------------
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 14. Principal Accountant Fees and Services
- -------- --------------------------------------
The information required by this item is incorporated by reference to the Proxy
Statement.
27
PART IV
-------
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) (1) Financial Statements: Page
----
Reports of Independent Registered Public Accounting Firms F-1 - F-2
Consolidated Balance Sheets --
at October 1, 2005 and October 2, 2004 F-3
Consolidated Statements of Operations -- For each of the
three fiscal years ended October 1, 2005, October 2, 2004
and September 27, 2003 F-4
Consolidated Statements of Cash Flows -- For each of the
three fiscal years ended October 1, 2005, October 2, 2004
and September 27, 2003 F-5
Consolidated Statements of Shareholders' Equity -- For each
of the three fiscal years ended October 1, 2005, October 2,
2004 and September 27, 2003 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial Statement Schedules
None
(3) Exhibits:
3.1 Certificate of Incorporation of the Registrant, filed with
the Secretary of State of the State of New York 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 September 28, 2002 ("2002 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed with the Secretary of State of the
State of New York on October 11, 1985, incorporated by
reference to Exhibit 3.2 to the 2002 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed with the Secretary of State of the
State of New York on July 21, 1988, incorporated by
reference to Exhibit 3.3 to the 2002 10-K.
3.4 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed with the Secretary of State of the
State of New York on May 13, 1997, incorporated by reference
to Exhibit 3.4 to the 2002 10-K.
3.5 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed on April 24, 2002 incorporated by
reference to Exhibit 3.5 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 30,
2002 (the "Second Quarter 2002 Form 10-Q").
28
3.6 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-18 filed with the Securities and Exchange Commission
on October 17, 1985.
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
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 2, 1994 ("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, Robert Stewart,
Bruce R. Lewin, Paul Gordon 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 Fourth Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA,
incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 2, 1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended,
incorporated by reference to the Registrant's Definitive
Proxy Statement pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1) filed on March 16,
2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas America Corp., incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended October 3, 1998 (the
"1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Festival Food Corp., incorporated
by reference to Exhibit 10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Steakhouse Corp., incorporated by
reference to Exhibit 10.8 to the 1998 10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 30, 2000
(the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.10 to the 2000 10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 29, 2001
(the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.11 of the 2001 10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth Amended
and Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.13 of the Second Quarter 2002 Form
10-Q.
29
10.14 Amendment dated as of January 22, 2002 to the Fourth Amended
and Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.14 of the First Quarter 2003 Form
10-Q.
10.15 Ark Restaurants Corp. 2004 Stock Option Plan, as amended,
incorporated by reference to the Registrant's Definitive
Proxy Statement pursuant to Section 14(a) of the Securities
Exchange Act of 1934 filed on January 26, 2004.
14 Code of Ethics, incorporated by reference to Exhibit 14.1 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 27, 2003.
16 Letter from Deloitte & Touche LLP regarding change in
certifying accountants, incorporated by reference from the
exhibit included with the Company's Current Report on Form
8-K filed with the SEC on January 15, 2004 and the Company's
Current Report on Form 8-K/A filed with the SEC on January
16, 2004.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of J.H. Cohn LLP.
*31.1 Certification of Chief Executive Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
*32 Section 1350 Certification
(b) Reports Report on Form 8-K dated December 28, 2004
on Form
8-K Report on Form 8-K/A dated January 13, 2005
Report on Form 8-K dated February 16, 2005
Report on Form 8-K dated April 13, 2005
Report on Form 8-K dated May 17, 2005
Report on Form 8-K dated July 12, 2005
Report on Form 8-K dated August 15, 2005
Report on Form 8-K dated October 11, 2005
- --------------
* Filed herewith.
30
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants
Corp. and Subsidiaries as of October 1, 2005 and October 2, 2004, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ark
Restaurants Corp. and Subsidiaries as of October 1, 2005 and October 2, 2004,
and their results of operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States
of America.
/s/ J.H. Cohn LLP
New York, New York
December 23, 2005
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Ark Restaurants Corp. and subsidiaries
(the "Company") for the fiscal year ended September 27, 2003. 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 audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Ark Restaurants
Corp. and subsidiaries for the fiscal year ended September 27, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte and Touche LLP
New York, New York
December 24, 2003
(December 30, 2004 as to the reclassifications described in the final paragraph
of Note 2)
F-2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
October 1, October 2,
2005 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,723 $ 4,435
Accounts receivable 2,821 2,171
Employee receivables 294 330
Current portion of long-term receivables (Note 3) 299 208
Inventories 1,615 1,731
Deferred income taxes (Note 12) 630 630
Prepaid expenses and other current assets 1,417 1,615
Assets held for sale (Note 2) -- 128
------------- -------------
Total current assets 12,799 11,248
------------- -------------
LONG-TERM RECEIVABLES (Note 3) 1,275 1,082
------------- -------------
FIXED ASSETS--At cost:
Leasehold improvements 31,252 29,720
Furniture, fixtures and equipment 28,107 27,178
Construction in progress 1,782 --
------------- -------------
61,141 56,898
Less accumulated depreciation and amortization 37,096 33,437
------------- -------------
24,045 23,461
------------- -------------
INTANGIBLE ASSETS--Net (Note 4) 198 224
GOODWILL 3,440 3,515
DEFERRED INCOME TAXES (Note 12) 4,679 4,591
OTHER ASSETS (Note 5) 729 773
------------- -------------
TOTAL $ 47,165 $ 44,894
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade $ 2,740 $ 2,230
Accrued expenses and other current liabilities (Note 6) 4,756 4,781
Current maturities of long-term debt (Note 7) -- 251
Accrued income taxes 1,004 2,093
------------- -------------
Total current liabilities 8,500 9,355
------------- -------------
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 878 899
OTHER LIABILITES (Note 2) 374 440
------------- -------------
TOTAL LIABILITIES 9,752 10,694
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Notes 9, 10 and 16):
Common stock, par value $.01 per share--authorized, 10,000
shares; issued 5,533 and 5,462 at October 1, 2005 56 54
and October 2, 2004, respectively
Additional paid-in capital 18,437 17,202
Retained earnings 27,472 25,694
------------- -------------
45,965 42,950
Less stock option receivable 166 364
Less treasury stock of 2,070 shares at October 1, 2005
and October 2, 2004 8,386 8,386
------------- -------------
Total shareholders' equity 37,413 34,200
------------- -------------
TOTAL $ 47,165 $ 44,894
============= =============
See notes to consolidated financial statements.
F-3
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
- --------------------------------------------------------------------------------
Years Ended
-----------------------------------------------------
October 1, October 2, September 27,
2005 2004 2003
REVENUES:
Food and beverage sales $ 113,751 $ 114,848 $ 102,054
Other income (Note 11) 1,826 850 679
------------- ------------- -------------
Total revenues 115,577 115,698 102,733
------------- ------------- -------------
COST AND EXPENSES:
Food and beverage cost of sales 28,973 29,554 25,392
Payroll expenses 36,212 36,045 33,176
Occupancy expenses 16,505 15,900 15,525
Other operating costs and expenses 14,623 14,492 12,312
General and administrative expenses 7,318 6,499 6,665
Depreciation and amortization 3,694 3,591 3,910
------------- ------------- -------------
Total cost and expenses 107,325 106,081 96,980
------------- ------------- -------------
OPERATING INCOME 8,252 9,617 5,753
------------- ------------- -------------
OTHER (INCOME) EXPENSE:
Interest expense (Note 7) 25 190 732
Interest income (101) (138) (162)
Other income (Note 13) (671) (595) (973)
------------- ------------- -------------
(747) (543) (403)
------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 8,999 10,160 6,156
PROVISION FOR INCOME TAXES (Note 12) 2,782 2,804 1,486
------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS 6,217 7,356 4,670
------------- ------------- -------------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM OPERATIONS OF DISCONTINUED RESTAURANTS
(INCLUDING NET GAINS ON DISPOSAL OF $644,000 FOR THE FISCAL YEAR
ENDED OCTOBER 1, 2005 AND NET LOSSES OF $168,000 ON DISPOSAL FOR
THE FISCAL YEAR ENDED OCTOBER 2, 2004) 525 (965) (1,781)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12) 163 (266) (430)
------------- ------------- -------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 362 (699) $ (1,351)
------------- ------------- -------------
NET INCOME $ 6,579 $ 6,657 $ 3,319
============= ============= =============
PER SHARE INFORMATION - BASIC AND DILUTED
Continuing operations basic $ 1.81 $ 2.22 $ 1.46
Discontinued operations basic $ 0.11 $ (0.21) $ (0.42)
------------- ------------- -------------
NET BASIC $ 1.92 $ 2.01 $ 1.04
============= ============= =============
Continuing operations diluted $ 1.75 $ 2.13 $ 1.45
Discontinued operations diluted $ 0.10 $ (0.20) $ (0.42)
------------- ------------- -------------
NET DILUTED $ 1.85 $ 1.93 $ 1.03
============= ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES--Basic 3,436 3,305 3,181
============= ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES--Diluted 3,555 3,444 3,213
============= ============= =============
See notes to consolidated financial statements.
F-4
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Years Ended
-------------------------------------------------
October 1, October 2, September 27,
2005 2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 6,217 $ 7,356 $ 4,670
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Deferred income taxes 187 (144) (355)
Depreciation and amortization 3,694 3,591 3,910
Operating lease deferred credit (21) 53 4
Changes in operating assets and liabilities
Receivables (650) (514) 288
Employee receivables 36 (75) 790
Inventories 116 133 (65)
Prepaid expenses and other current assets 198 (1,025) 18
Prepaid income taxes -- -- 957
Other assets 43 208 (314)
Accounts payable - trade 510 (1,213) 111
Accrued income taxes (583) 1,357 1198
Accrued expenses and other current liabilities (25) (805) (770)
------------- ------------- -------------
Net cash provided by operating activities 9,722 8,922 10,442
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (4,252) (1,529) (1,603)
Payments received on note receivables 416 193 169
------------- ------------- -------------
Net cash used in investing activities (3,836) (1,336) (1,434)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- -- 1,100
Principal payments on long-term debt (251) (7,328) (9,355)
Exercise of stock options 457 1,966 --
Payments received under stock options receivables 198 291 61
Payment of debt issuance costs -- -- (162)
Payment of dividends (4,801) -- --
Purchase of treasury stock -- (35) --
------------- ------------- -------------
Net cash used in financing activities (4,397) (5,106) (8,356)
------------- ------------- -------------
NET CASH PROVIDED BY
CONTINUING OPERATIONS 1,489 2,480 652
NET CASH (USED IN) PROVIDED BY
DISCONTINUED OPERATIONS (201) 1,469 (985)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 1,288 3,949 (333)
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS--
Beginning of year 4,435 486 819
------------- ------------- -------------
CASH AND CASH EQUIVALENTS-- End of year $ 5,723 $ 4,435 $ 486
============= ============= =============
SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest $ 25 $ 264 $ 768
============= ============= =============
Income taxes $ 3,341 $ 1,455 $ 114
============= ============= =============
SUPPLEMENTAL DICLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Tax benefit on exercise of stock options $ 780 $ 495 $ --
============= ============= =============
See notes to consolidated financial statements.
F-5
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 1, 2005, OCTOBER 2, 2004 AND SEPTEMBER 27, 2003
(In thousands)
- --------------------------------------------------------------------------------
Common Stock Additional Stock Total
------------ Paid-In Retained Treasury Options Shareholders'
Shares Amount Capital Earnings Stock Receivable Equity
BALANCE, September 28, 2002 5,249 $ 52 $ 14,743 $ 15,718 $ (8,351) $ (716) $ 21,446
Net payment on stock options receivables -- -- -- -- -- 61 61
Net income -- -- -- 3,319 -- -- 3,319
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE--September 27, 2003 5,249 52 14,743 19,037 (8,351) (655) 24,826
Exercise of stock options 213 2 1,964 -- -- -- 1,966
Tax benefit on exercise of options -- -- 495 -- -- -- 495
Purchase of treasury stock -- -- -- -- (35) -- (35)
Payment on stock options receivables -- -- -- -- -- 291 291
Net income -- -- -- 6,657 -- -- 6,657
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE--October 2, 2004 5,462 54 17,202 25,694 (8,386) (364) 34,200
Exercise of stock options 71 2 455 -- -- -- 457
Tax benefit on exercise of options -- -- 780 -- -- -- 780
Payment on stock options receivables -- -- -- -- -- 198 198
Payment of dividends - $1.40 per share (4,801) -- -- (4,801)
Net income -- -- -- 6,579 -- -- 6,579
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE--October 1, 2005 5,533 $ 56 $ 18,437 $ 27,472 $ (8,386) $ (166) $ 37,413
========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
F-6
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 1, 2005, OCTOBER 2, 2004 AND SEPTEMBER 27, 2003
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 23
restaurants, 26 fast food concepts, catering operations and wholesale and
retail bakeries. Nine restaurants are located in New York City, nine in
Las Vegas, Nevada and four in Washington, D.C. The Las Vegas operations
include three restaurants within the New York-New York Hotel & Casino
Resort and operation of the resort's room service, banquet facilities,
employee dining room and nine food court concepts. Four restaurants and
bars are within the Venetian Casino Resort as well as four food court
concepts; one restaurant is within the Forum Shops at Caesar's Shopping
Center and one restaurant is in downtown Las Vegas at the Neonopolis
Center. The Company also manages five fast food facilities in Tampa,
Florida and eight fast food facilities in Hollywood, Florida, each at a
Hard Rock Hotel and Casino owned by the Seminole Indian Tribe at these
locations. One restaurant and one bar are located in the Resorts Casino in
Atlantic City, New Jersey.
Accounting Period--The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal year ended October 1, 2005 included 52 weeks. The
fiscal years ended October 2, 2004 and September 27, 2003 included 53
weeks and 52 weeks, respectively.
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 long-term
receivables, 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 it believes 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 statements.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents--Cash equivalents include instruments with maturities of
three months or less, when purchased.
Accounts Receivable--Accounts receivable is primarily composed of normal
business receivables such as credit card receivables that are paid off in
a short period of time. See Notes 16 and 17 for a discussion of related
party receivables.
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-7
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 (three to seven 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 30 years. For leases
with renewal periods at the Company's option, if failure to exercise a
renewal option imposes an economic penalty to the Company, management may
determine at the inception of the lease that renewal is reasonably assured
and include the renewal option period in the determination of appropriate
estimated useful lives.
The Company includes in construction in progress improvements in
restaurants that are under construction. Once the projects have been
completed, the Company will begin depreciating and amortizing the assets.
Start-up costs incurred during the construction period of restaurants,
including rental of premises, training and payroll, are expensed as
incurred.
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the asset's carrying amount. In the evaluation of the fair value and
future benefits of long-lived assets, the Company performs an analysis of
the anticipated undiscounted future net cash flows of the related
long-lived assets. If the carrying value of the related asset exceeds the
undiscounted cash flows, the carrying value is reduced to its fair value.
Various factors including future sales growth and profit margins are
included in this analysis. Management believes at this time that carrying
values and useful lives continue to be appropriate.
For the years ended October 1, 2005 and October 2, 2004, no impairment
charges were deemed necessary. For the year ended September 27, 2003, an
impairment charge of $667,000 was incurred on the restaurant Lutece (Note
2).
Intangible Assets and Goodwill--As of September 29, 2002, the Company
adopted the provisions of SFAS No. 142, Accounting for Goodwill and Other
Intangible Assets. This statement requires that for the Company goodwill,
including the goodwill included in the carrying value of investments
accounted for using the equity method of accounting, and certain other
intangible assets deemed to have an indefinite useful life, cease
amortizing. SFAS No. 142 requires that goodwill and certain intangible
assets be assessed for impairment using fair value measurement techniques.
Specifically, goodwill impairment is determined using a two-step process.
The first step of the goodwill impairment test is used to identify
potential impairment by comparing the fair value of the reporting unit
(the Company is being treated as one reporting unit) with its net book
value (or carrying amount), including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of the reporting unit exceeds its fair
value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. The second step of the
goodwill impairment test compares the implied fair value of the reporting
unit's goodwill with the carrying amount of that goodwill. If the carrying
amount of the reporting unit's goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recognized in an amount equal to that
excess. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination.
That is, the fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit. The impairment test for other
intangible assets consists of a comparison of the fair value
F-8
of the intangible asset with its carrying value. If the carrying value of
the intangible asset exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess.
Determining the fair value of the reporting unit under the first step of
the goodwill impairment test and determining the fair value of individual
assets and liabilities of the reporting unit (including unrecognized
intangible assets) under the second step of the goodwill impairment test
is judgmental in nature and often involves the use of significant
estimates and assumptions. Similarly, estimates and assumptions are used
in determining the fair value of other intangible assets. These estimates
and assumptions could have a significant impact on whether or not an
impairment charge is recognized and also the magnitude of any such charge.
To assist in the process of determining goodwill impairment, the Company
obtains appraisals from independent valuation firms. In addition to the
use of independent valuation firms, the Company performs internal
valuation analyses and considers other market information that is publicly
available. Estimates of fair value are primarily determined using
discounted cash flows and market comparisons and recent transactions.
These approaches use significant estimates and assumptions including
projected future cash flows (including timing), discount rate reflecting
the risk inherent in future cash flows, perpetual growth rate,
determination of appropriate market comparables and the determination of
whether a premium or discount should be applied to comparables. Based on
the above policy no impairment charges were recorded during the fiscal
years ended 2005, 2004 and 2003.
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.
Covenants not to compete arising from restaurant acquisitions are
amortized over the contractual period of five years.
Amortization expense for intangible assets not including goodwill was
$28,000, $27,000 and $15,000 for the years ended October 1, 2005, October
2, 2004, and September 27, 2003, respectively.
Leases - The Company is obligated under various lease agreements for
certain restaurants. The Company recognizes rent expense on a
straight-line basis over the expected lease term, including option periods
as described below. Within the provisions of certain leases there are
escalations in payments over the base lease term, as well as renewal
periods. The effects of the escalations have been reflected in rent
expense on a straight-line basis over the expected lease term, which
includes option periods when it is deemed to be reasonably assured that
the Company would incur an economic penalty for not exercising the option.
Percentage rent expense is generally based upon sales levels and is
expensed as incurred. Certain leases include both base rent and percentage
rent. The Company records rent expense on these leases based upon
reasonably assured sales levels. The consolidated financial statements
reflect the same lease terms for amortizing leasehold improvements as were
used in calculating straight-line rent expense for each restaurant. The
judgments of the Company may produce materially different amounts of
amortization and rent expense than would be reported if different lease
terms were used.
Other Assets-- Certain legal and bank commitment fees incurred in
connection with the Company's Revolving Credit and Term Loan Facility, as
discussed in Note 7, were capitalized as deferred financing fees and were
amortized over two years, the remaining term of the facility.
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
F-9
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 Taxes--Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
includes the enactment date. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized
Income Per Share of Common Stock--Basic net income per share is computed
in accordance with Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings Per Share, and is calculated on the basis of the weighted
average number of common shares outstanding during each period. Diluted
net income per share reflects the additional dilutive effect of
potentially dilutive shares (principally those arising from the assumed
exercise of stock options).
Stock Options--The Company accounts for stock options granted to employees
under the intrinsic value-based method for employee stock-based
compensation and provides pro forma disclosure of net income and earnings
per share as if the accounting provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123") had been adopted. The Company generally does not grant
options to outsiders.
SFAS No. 123 requires the Company to disclose pro forma net income and pro
forma earnings per share information for employee stock option grants to
employees as if the fair-value method defined in SFAS No. 123 had been
applied. The Company utilized the Black-Scholes option-pricing model to
quantify the pro forma effects on net income and earnings per share of all
options granted. During fiscal 2005 194,000 options to purchase common
stock were granted. There were no options granted during fiscal 2004 and
2003 and no charges to operations for options issued to employees during
fiscal 2005, 2004 and 2003.
In accordance with Statement of Financial Accounting Standards No. 148
("SFAS No. 148") and SFAS No. 123, the Company's pro forma option expense
is computed using Black-Scholes option pricing model. To comply with SFAS
No. 148, the Company is presenting the following table to illustrate the
effect on the net income and income per share if it had applied the fair
value recognition provisions of SFAS No. 123, as amended, to options
granted under the stock-based employee compensation plan. For purposes of
this pro forma disclosure, the estimated value of the options is amortized
ratably to expense over the options' vesting periods.
F-10
The pro forma impact was as follows:
Years Ended
----------------------------------------------
October 1, October 2, September 27,
2005 2004 2003
(In thousands, except per share amounts)
Net income as reported $ 6,579 $ 6,657 $ 3,319
Deduct stock based compensation expense
computed under the fair value method 494 85 118
------------- ------------- -------------
Net income - pro forma $ 6,085 $ 6,572 $ 3,201
============= ============= =============
Net income per share as reported - basic $ 1.92 $ 2.01 $ 1.04
Net income per share as reported - diluted $ 1.85 $ 1.93 $ 1.03
Net income per share pro forma - basic $ 1.77 $ 1.99 $ 1.01
Net income per share pro forma - diluted $ 1.71 $ 1.91 $ 1.00
On December 21, 2004, the company granted options to employees to
purchase 194,000 shares of common stock at a price of $29.60 per share.
These options will vest after two years and expire ten years after the
date of grant. The Company did not record any intrinsic value for these
options. The assumptions used for fiscal 2005 for the pro forma effects
of options granted on December 21, 2004 included a risk-free interest
rate of 3.37%, volatility of 37%, a dividend yield of 3% and an expected
life of three years.
Reclassifications--Certain reclassifications of prior year balances have
been made to conform to the current year presentation.
2. RECENT RESTAURANT DISPOSITIONS
In fiscal 2003, the Company determined that its restaurant, Lutece,
located in New York City, had been impaired by the events of September
11th and the continued weakness in the economy. Based upon the sum of the
future undiscounted cash flows related to the Company's long-lived fixed
assets at Lutece, the Company determined that impairment had occurred. To
estimate the fair value of such long-lived fixed assets, for determining
the impairment amount, the Company used the expected present value of the
future cash flows. The Company projected continuing negative operating
cash flow for the foreseeable future with no value for subletting or
assigning the lease for the premises. As a result, the Company determined
that there was no value to the long-lived fixed assets. The Company had an
investment of $667,000 in leasehold improvements, furniture fixtures and
equipment. The Company believed that these assets would have nominal value
upon disposal and recorded an impairment charge of $667,000 during fiscal
2003. Due to continued weak sales, the Company closed Lutece during the
second quarter of 2004. The Company recorded net operating losses of
$804,000 for Lutece during the fiscal year ended October 2, 2004 which are
included in losses from discontinued operations. In 2004, the Company also
incurred a one-time charge of $470,000 related to pension plan
contributions required in connection with the closing of Lutece which is
payable monthly over a nine year period beginning May 17, 2004 and bears
interest at 8% per annum. Net operating losses of $60,000 were included in
losses from discontinued operations for the fiscal year ended October 1,
2005.
On December 1, 2003, the Company sold a restaurant, Lorelei, for
approximately $850,000. The book value of inventory, fixed assets,
intangible assets and goodwill related to this entity was approximately
$625,000. The Company recorded a gain on the sale of approximately
$225,000 during the first quarter
F-11
of fiscal 2004 which is included in losses from discontinued operations.
Net operating losses of $145,000 were recorded in discontinued operations
in fiscal 2004. There were no additional expenses related to this
restaurant during the fiscal year ended October 2, 2004.
The Company's restaurant Ernie's, located on the upper west side of
Manhattan opened in 1982. As a result of a steady decline in sales, the
Company felt that a new concept was needed at this location. The
restaurant was closed June 16, 2003 and reopened in August 2003. Total
conversion costs were approximately $350,000. Sales at the new restaurant,
La Rambla, failed to reach the level sufficient to achieve the results the
Company required. As a result, the Company sold this restaurant on January
1, 2004 and realized a gain on the sale of this restaurant of
approximately $214,000. Net operating losses of $230,000 were included in
losses from discontinued operations for the fiscal year ended October 2,
2004. Net operating losses of $12,000 were included in losses from
discontinued operations for the fiscal year ended October 1, 2005.
The Company's restaurant Jack Rose located on the west side of Manhattan
has experienced weak sales for several years. In addition, this restaurant
did not fit the Company's desired profile of being in a landmark
destination location. As a result, the Company sold this restaurant on
February 23, 2004. The Company realized a loss on the sale of this
restaurant of $137,000 which was recorded during the second quarter of
fiscal 2004. The Company recorded net operating losses of $148,000 during
fiscal 2004 for this restaurant. These losses are included in losses from
discontinued operations. Net operating losses of $19,000 were included in
losses from discontinued operations for the fiscal year ended October 1,
2005.
The Company's restaurant America, located in New York City, has
experienced declining sales for several years. In March 2004, the Company
entered into a new lease for this restaurant at a significantly increased
rent. The Company entered into this lease with the belief that due to the
location and the uniqueness of the space the lease had value. On January
19, 2005, the Company signed a definitive agreement for the sale of this
restaurant which closed on March 15, 2005. The Company realized a pre-tax
gain of $644,000 on the sale of this restaurant. Net operating income of
$47,000 was recorded in income from discontinued operations for the fiscal
year ended October 1, 2005.
In accordance with SFAS No. 144, all prior years included in the
accompanying consolidated statements of operations and cash flows have
been reclassified to separately show the results of operations and cash
flows of these discontinued operations. Total revenues of these
discontinued operations were $1,871,000, $6,501,000 and $13,860,000 in
fiscal 2005, 2004 and 2003, respectively.
As a result of the above mentioned sales, the Company allocated $75,000 of
goodwill to these restaurants and reduced goodwill by this amount in
fiscal 2005.
F-12
3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
October 1, October 2,
2005 2004
(In thousands)
Note receivable collateralized by fixed assets and lease at a
restaurant sold by the Company, at 8% interest; due in
monthly installments through December 2006 (a) $ 111 $ 192
Note receivable collateralized by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments through December 2008 (b) 788 1,009
Note receivable collateralized by fixed assets and lease at a
restaurant sold by the Company, at 7.0% interest; due in
monthly installments through December 2007 (c) -- 89
Note receivable collateralized by fixed assets and lease at a
restaurant sold by the Company, at 6% interest, due in
monthly installments through June 2011 (d) 675 --
---------- ----------
1,574 1,290
Less current portion 299 208
---------- ----------
$ 1,275 $ 1,082
========== ==========
(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.
(b) In October 1997, the Company sold a restaurant for $1,750,000,
of which $200,000 was paid in cash and the balance is due in
monthly installments under the terms of two notes bearing
interest at 7.5%. One note, with an initial principal balance
of $400,000, was paid in 24 monthly installments of $19,000
through April 2000. The second note, with an initial principal
balance of $1,150,000, will be paid in 104 monthly
installments of $15,000 commencing May 2000 and ending
December 2008. At December 2008, the then outstanding balance
of $519,000 matures.
The Company recognized a gain of approximately $585,000 in the
fiscal year ended September 27, 2003 in connection with the
sale of this restaurant. The gain recognized reflected the
realization of a gain that had been deferred originally due to
the length of the note and the substantial balance due upon
maturity ($519,000). A review of the performance of this note
and the security underlying it has lead management to conclude
that the full amount will likely be collected and,
accordingly, the note no longer requires a reserve.
Consequently, the Company eliminated this reserve and included
the amount in revenue, in other income, for the year ended
September 27, 2003. As a result of the reclassification of
discontinued operations this gain is included in losses from
discontinued operations for fiscal 2003.
(c) In June 2000, the Company sold this restaurant for $438,000.
Cash of $188,000 was received on sale and the balance was due
in installments through June 2006. In February 2001, the buyer
defaulted and the Company took possession of this restaurant
and sold it to another
F-13
party in June 2002. The total price was $270,000, cash of
$145,000 was received on sale and the balance was due in
installments through December 2007. The buyer fully paid the
note during fiscal 2005.
(d) In March 2005, the Company sold this restaurant for
$1,300,000. Cash of $600,000 was included on the sale. Of the
$600,000 cash, $200,000 was paid to the Company as a fee to
manage the restaurant for four months prior to closure and the
balance was paid directly to the landlord. The remaining
$700,000 was received in the form of a note payable in
installments through June 2011.
The Company recognized a gain during the year ended October 1,
2005 of $644,000.
The carrying value of the Company's long-term receivables approximates
their current aggregate fair value.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
October 1, October 2,
2005 2004
(In thousands)
Purchased leasehold rights (a) $ 611 $ 611
Noncompete agreements and other 600 600
---------- ----------
1,211 1,211
Less accumulated amortization 1,013 987
---------- ----------
Total intangible assets $ 198 $ 224
========== ==========
(a) Purchased leasehold rights arise from acquiring leases and subleases
of various restaurants.
F-14
5. OTHER ASSETS
Other assets consist of the following:
October 1, October 2,
2005 2004
(In thousands)
Deposits and other $ 350 $ 350
Deferred financing fees -- 27
Landlord receivable (a) 379 396
---------- ----------
$ 729 $ 773
========== ==========
(a) This balance represents certain costs paid by the Company on behalf
of a landlord, that under an agreement with the landlord will be
used as a future offset to contingent rent payments for certain Las
Vegas restaurants.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
October 1, October 2,
2005 2004
(In thousands)
Sales tax payable $ 763 $ 833
Accrued wages and payroll related costs 1,756 1,430
Customer advance deposits 986 853
Accrued and other liabilities 1,134 1,169
Abandonment accrual (a) 117 496
---------- ----------
$ 4,756 $ 4,781
========== ==========
(a) During the year ended September 29, 2001, the Company recorded the
entire amount payable under an operating lease for restaurant
equipment for the Aladdin operations as a liability of $1,600,000
based on their anticipated abandonment. During the year ended
September 28, 2002, the operations at the Aladdin were abandoned.
F-15
7. NOTES PAYABLE
The Company's debt consisted of the following:
Ocober 1, October 2,
2005 2004
(In thousands)
Notes issued in connection with refinancing of restaurant
equipment, with interest at 8.80%, payable in monthly
installments through May 2005 (a) $ - $ 251
--------- ----------
251
Less current maturities - 251
--------- ----------
$ - $ -
========= ==========
(a) In April 2000, the Company borrowed from its main bank $1,570,000 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 8.80% per annum and are payable in 60
equal monthly installments of $32,439 inclusive of interest, paid
off in May 2005.
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 2021. 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 October 1, 2005, future minimum lease payments under noncancelable
leases are as follows:
Amount
Fiscal Year (In thousands)
2006 $ 7,631
2007 6,537
2008 5,811
2009 5,349
2010 5,094
Thereafter 28,106
--------
Total minimum payments $ 58,528
========
F-16
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate
amount of $350,000 as security deposits under such leases.
Rent expense was $11,978,000, $12,104,000 and $11,027,000 during the
fiscal years ended October 1, 2005, October 2, 2004 and September 27,
2003, respectively. Contingent rentals, included in rent expense, were
$4,160,000, $4,153,000 and $3,366,000 for the fiscal years ended October
1, 2005, October 2, 2004 and September 27, 2003, respectively.
In August 2004, the Company entered into a lease agreement to operate a
Gallagher's Steakhouse and separate bar, Lunar Lounge, at the Resorts
International Hotel and Casino in Atlantic City, New Jersey. The landlord
has agreed to contribute up to $3,000,000 towards the construction of
these facilities. The Company estimates the Company will provide an
additional $1,000,000 towards the construction. The bar opened in December
2005 and the Company anticipates that the restaurant will be opened on New
Years Eve 2005. The future minimum lease payments from these lease
agreements are included in the above schedule.
Legal Proceedings--In the ordinary course of its business, the Company is
a party to various lawsuits arising from accidents at its restaurants and
worker'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. The Company does not believe
that any of such suits will have a materially adverse effect upon the
Company's consolidated financial statements. In October 2003, the
Company's landlord for its executive, administrative and clerical offices
located in New York, New York commenced an action against the Company in
the Supreme Court, New York County asserting the Company had failed to
validly exercise its option with respect to the premises at issue and that
the Landlord was entitled to immediate and exclusive possession of the
premises. The Company answered and asserted affirmative defenses and
counterclaims. By an order dated May 25, 2004, the court denied the
landlord's motion for summary judgment on its complaint while granting, in
part, the landlord's motion to dismiss the Company's affirmative defenses
and counterclaims. Both the landlord and the Company appealed from the May
25, 2004 order, but no decision on the appeals has been issued. Pending
the outcome of this litigation, the Company remains in possession of the
premises.
9. COMMON STOCK REPURCHASE PLAN
In August 1998, the Company authorized the repurchase of up to 500,000
shares of the Company's outstanding common stock. In April 1999, the
Company authorized the repurchase of an additional 300,000 shares of the
Company's outstanding common stock. For the years ended October 1, 2005
and September 27, 2003, there were no repurchases of common stock. For the
year ended October 2, 2004 the Company repurchased 2,500 shares at a total
cost of $35,000.
10. STOCK OPTIONS
The Company has options outstanding under two stock option plans, the 1996
Stock Option Plan (the "1996 Plan") and the 2004 Stock Option Plan (the
"2004 Plan"). In 2004 the Company terminated the 1996 Plan. This action
terminated the 257,000 authorized but unissued options under the 1996 Plan
but it did not affect any of the options previously issued under the 1996
Plan.
Options granted under the 1996 Plan 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
F-17
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
grant date.
Options granted under the 2004 Plan 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 ten years after the date of grant and are
generally exercisable as to 50% of the shares commencing on the first
anniversary of the date of grant and as to an additional 50% commencing on
the second anniversary of the date of grant.
Additional information follows:
2005 2004 2003
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding, beginning of year 178,000 $ 7.91 392,500 $ 7.91 392,500 $ 7.91
Options:
Granted 194,000 29.60 -- --
Exercised (71,000) 6.47 (212,500) 9.18 --
Canceled or expired -- (2,000) 10.00 --
------- -------- ---------
Outstanding, end of year (a) 301,000 21.32 178,000 6.30 392,500 7.91
======= ======== =========
Exercise price, outstanding options $6.30 - 29.60 $6.30 - 7.50 $6.30 - 10.00
Weighted average years 6.38 Years 2.14 Years 2.06 Years
Shares available for future grant (b) 256,000 450,000 257,000
Options exercisable (a) 107,000 6.30 60,500 6.30 220,000 9.10
Fair value of options granted 194,000 8.13 -- --
(a) Options become exercisable at various times until expiration dates
ranging from December 2003 through December 2014.
(b) The 2004 Stock Option Plan, which was approved by shareholders, is
the Company's only equity compensation plan currently in effect.
Under the 2004 Stock Option Plan, 450,000 options were authorized
for future grant and 194,000 of these options were issued during
fiscal 2005. The Company, with the approval of the shareholders,
terminated the 1996 Stock option Plan. This action terminated the
257,000 authorized but unissued options under the 1996 Stock Option
Plan but it did not affect any of the options previously issued
under the 1996 Stock Option Plan.
11. MANAGEMENT FEE INCOME
As of October 1, 2005, the Company provides management services to two
fast food courts and one restaurant it does not own. In accordance with
the contractual arrangements, the Company earns management fees based on
operating profits as defined by the agreement.
Management fee income relating to these services was $1,568,000, $386,000
and $120,000 for the years ended October 1, 2005, October 2, 2004 and
September 27, 2003, respectively.
F-18
Restaurants managed had sales of $12,105,000, $9,566,000 and $2,765,000
during the management periods within the years ended October 1, 2005,
October 2, 2004 and September 27, 2003, 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 (benefit) for income taxes attributable to continuing and
discontinued operations consists of the following:
Years Ended
--------------------------------------------------
October 1, October 2, September 27,
2005 2004 2003
(In thousands)
Current provision (benefit):
Federal $ 2,189 $ 2,168 $ 1,534
State and local 569 514 316
------------- ------------- -------------
2,758 2,682 1,850
------------- ------------- -------------
Deferred provision (benefit):
Federal 413 259 3
State and local (226) (403) (797)
------------- ------------- -------------
187 (144) (794)
------------- ------------- -------------
$ 2,945 $ 2,538 $ 1,056
============= ============= =============
F-19
The provision for income taxes differs from the amount computed by
applying the Federal statutory rate due to the following:
Years Ended
-------------------------------------------------
October 1, October 2, September 27,
2005 2004 2003
(In thousands)
Provision for Federal
income taxes (34%) $ 3,238 $ 3,126 $ 1,488
State and local income taxes net of Federal
tax benefit 309 334 208
Tax credits (514) (591) (132)
State and local net operating loss carryforward
allowance adjustment (125) (395) (445)
Other 37 64 (63)
------------- ------------- -------------
$ 2,945 $ 2,538 $ 1,056
============= ============= =============
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:
October 1, October 2,
2005 2004
(In thousands)
Current deferred tax assets (liabilities):
Operating loss carryforwards $ 300 $ 300
Carryforward tax credits 600 600
Inventory (270) (270)
------------- -------------
Total current net deferred tax assets 630 630
------------- -------------
Long-term deferred tax assets (liabilities):
Operating loss carryforwards $ 1,853 $ 1,828
Operating lease deferred credits 320 377
Carryforward tax credits 3,970 4,424
Depreciation and amortization (973) (1,598)
Deferred gains (260) (107)
Valuation allowance (358) (486)
Pension withdrawal liability 127 153
------------- -------------
Total long-term net deferred tax assets 4,679 4,591
------------- -------------
Total net deferred tax assets $ 5,309 $ 5,221
============= =============
F-20
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 $358,000 at October 1, 2005, $486,000 at October 2,
2004. The Company decreased its allowance for the utilization of the
deferred tax asset arising from state and local operating loss
carryforwards by $125,000 and $395,000 for the years ended October 1, 2005
and October 2, 2004, respectively, based on the merger of certain
unprofitable subsidiaries into profitable ones. The Company has state
operating loss carryforwards of $27,296,000, which expire in the years
2006 through 2020.
Subsequent to the fiscal year ended October 1, 2005 the Company agreed to
a settlement with the Internal Revenue Service which covered fiscal years
ended October 2, 1999 through October 2, 2004. The final adjustments
primarily involve the timing of deductions made during the fiscal year
ended September 28, 2003 relating to the abandonment of the Company's
restaurant and food court operations at Desert Passage which adjoins the
Aladdin Casino Resort in Las Vegas, Nevada. This settlement did not have a
material effect on the Company's financial condition.
During the fiscal year ended September 27, 2003, the Company and the
Internal Revenue Service finalized the adjustments to the Company's
Federal income tax returns for the fiscal years ended September 30, 1995
through October 3, 1998. The final adjustments primarily relate to: (i)
legal and accounting expenses incurred in connection with new or acquired
restaurants that the Internal Revenue Service asserts should have been
capitalized and amortized rather than currently expensed and (ii) travel
and meal expenses for which the Internal Revenue Service asserts the
Company did not comply with certain record keeping requirements or the
Internal Revenue Code. These settlements did not have a material effect on
the Company's financial condition.
13. OTHER INCOME
Other income consists of the following:
Years Ended
---------------------------------------------
October 1, October 2, September 27,
2005 2004 2003
(In thousands)
Purchasing service fees $ 41 $ 61 $ 58
World Trade Center Recovery Grants (a) -- -- 508
Other 630 534 407
------------- ------------- -------------
$ 671 $ 595 $ 973
============= ============= =============
F-21
(a) During the fiscal year ended September 27, 2003, the Company applied
for grants to the World Trade Center Business Recovery Grant Program
for four restaurants located in downtown New York. The program was
established to compensate businesses for economic losses resulting
from the September 11, 2001 disaster. As a result of our
applications, the Company received compensation of $508,000 during
the fourth quarter of the year ended September 27, 2003.
14. INCOME PER SHARE OF COMMON STOCK
A reconciliation of the numerators and denominators of the basic and
diluted per share computations for the fiscal years ended October 1, 2005,
October 2, 2004 and September 27, 2003 follows.
Income Shares Per-Share
(Numerator) (Denominator) Amount
(In thousands, except per share amounts)
Year ended October 1, 2005:
Basic EPS $ 6,579 3,436 $ 1.92
Stock options -- 119 (0.07)
------------- ------------- -------------
Diluted EPS $ 6,579 3,555 $ 1.85
============= ============= =============
Year ended October 2, 2004:
Basic EPS $ 6,657 3,305 $ 2.01
Stock options -- 139 (0.08)
------------- ------------- -------------
Diluted EPS $ 6,657 3,444 $ 1.93
============= ============= =============
Year ended September 27, 2003:
Basic EPS $ 3,319 3,181 $ 1.04
Stock options -- 32 (0.01)
------------- ------------- -------------
Diluted EPS $ 3,319 3,213 $ 1.03
============= ============= =============
For the year ended September 27, 2003, stock options for shares of 168,000
were not included in the computation of diluted EPS because to do so would
have been antidilutive.
F-22
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
Fiscal Quarters Ended
---------------------------------------------------
January 1, April 2, July 2, October 1,
2005 2005 2005 2005
(In thousands except per share amounts)
2005
Food and beverage sales $ 26,734 $ 24,309 $ 32,205 $ 30,503
Income from continuing operations 1,169 135 2,850 2,063
Income (loss) from discontinued operations 15 419 (28) (44)
---------- ---------- ---------- ----------
Net income (loss) 1,184 554 2,822 2,019
Per share information - basic and diluted:
Continuing operations basic $ 0.34 $ 0.04 $ 0.82 $ 0.60
Discontinued operations basic 0.01 0.12 0.00 (0.01)
---------- ---------- ---------- ----------
Net basic $ 0.35 $ 0.16 $ 0.82 $ 0.59
Continuing operations diluted $ 0.33 $ 0.04 $ 0.80 $ 0.58
Discontinued operations diluted 0.01 0.12 0.00 (0.01)
---------- ---------- ---------- ----------
Net diluted $ 0.34 $ 0.16 $ 0.80 $ 0.57
Fiscal Quarters Ended
----------------------------------------------------
December 27, March 27, June 26, October 2,
2003 2004 2004 2004
(In thousands except per share amounts)
2004
Food and beverage sales $ 24,592 $ 24,739 $ 32,504 $ 33,013
Income from continuing operations 418 494 3,094 3,350
Income (loss) from discontinued operations 138 (608) (34) (195)
---------- ---------- ---------- ----------
Net income (loss) 556 (114) 3,060 3,155
Per share information - basic and diluted:
Continuing operations basic $ 0.13 $ 0.15 $ 0.89 $ 0.99
Discontinued operations basic 0.05 (0.19) (0.01) (0.06)
---------- ---------- ---------- ----------
Net basic $ 0.18 $ (0.04) $ 0.88 $ 0.93
Continuing operations diluted $ 0.13 $ 0.15 $ 0.85 $ 0.95
Discontinued operations diluted 0.04 (0.19) (0.01) (0.06)
---------- ---------- ---------- ----------
Net diluted $ 0.17 $ (0.04) $ 0.84 $ 0.89
F-23
16. STOCK OPTION RECEIVABLES
Stock option receivables include amounts due from officers and directors
totaling $166,000 and $364,000 at October 1, 2005 and October 2, 2004,
respectively. Such amounts which are due from the exercise of stock
options in accordance with the Company's Stock Option Plan are payable on
demand with interest (6.75% at October 1, 2005 and 4% at October 2, 2004).
17. RELATED PARTY TRANSACTIONS
Receivables due from officers and directors, excluding stock option
receivables, totaled $37,000 at October 1, 2005 compared to $52,000 at
October 2, 2004. Other employee loans totaled $257,000 at October 1, 2005
compared to $278,000 at October 1, 2004. Such loans bear interest at the
minimum statutory rate (3.83% at October 1, 2005 and 2.24% at October 2,
2004).
18. SUBSEQUENT EVENTS
On October 11, 2005 the Company declared its regular quarterly dividend of
$.35 per share on the Company's outstanding common stock payable
November 1, 2005 to shareholders of record at the close of business
October 21, 2005. On November 1, 2005 the Company paid dividends of
$1,212,000.
******
F-24
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.
ARK RESTAURANTS CORP.
By: /s/Michael Weinstein
-------------------------------------
Michael Weinstein
President and Chief Executive Officer
Date: December 30, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Michael Weinstein Chairman of the Board, President, December 30, 2005
- --------------------------- and Chief Executive Officer
(Michael Weinstein)
/s/Vincent Pascal Senior Vice President December 30, 2005
- --------------------------- and Director
(Vincent Pascal)
/s/Robert Towers Executive Vice President, December 30, 2005
- --------------------------- Treasurer, Chief Operating
(Robert Towers) Officer and Director
/s/Robert Stewart Chief Financial Officer December 30, 2005
- ---------------------------
(Robert Stewart)
/s/Marcia Allen Director December 30, 2005
- ---------------------------
(Marcia Allen)
/s/Steven Shulman Director December 30, 2005
- ---------------------------
(Steven Shulman)
/s/Paul Gordon Senior Vice President December 30, 2005
- --------------------------- and Director
(Paul Gordon)
/s/Bruce R. Lewin Director December 30, 2005
- ---------------------------
(Bruce R. Lewin)
/s/Arthur Stainman Director December 30, 2005
- ---------------------------
(Arthur Stainman)
/s/Edward Lowenthal Director December 30, 2005
- ---------------------------
(Edward Lowenthal)
/s/ Stephen Novick Director December 30, 2005
- ---------------------------
(Stephen Novick)
/s/ Robert Thomas Zankel Director December 30, 2005
- ---------------------------
(Robert Thomas Zankel)
Exhibits Index
--------------
3.1 Certificate of Incorporation of the Registrant, filed with the
Secretary of State of the State of New York on January 4, 1983.
3.2 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
New York on October 11, 1985.
3.3 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
New York on July 21, 1988.
3.4 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed with the Secretary of State of the State of
New York on May 13, 1997.
3.5 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed on April 24, 2002 incorporated by reference
to Exhibit 3.5 to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 30, 2002 (the "Second
Quarter 2002 Form 10-Q").
3.6 By-Laws of the Registrant, incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-18
filed with the Securities and Exchange Commission on October 17,
1985.
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 Registrant's Annual Report on
Form 10-K for the fiscal year ended October 2, 1999 ("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, Robert Stewart, Bruce R.
Lewin, Paul Gordon 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 Fourth Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA,
incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended October 2,
1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended,
incorporated by reference to the Registrant's Definitive Proxy
Statement pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. 1) filed on March 16, 2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas America Corp., incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October 3, 1998 (the "1998
10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Festival Food Corp., incorporated by
reference to Exhibit 10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Steakhouse Corp., incorporated by
reference to Exhibit 10.8 to the 1998 10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between
the Company and Bank Leumi USA, incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 2000 (the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between
the Company and Bank Leumi USA, incorporated by reference to
Exhibit 10.10 to the 2000 10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between
the Company and Bank Leumi USA, incorporated by reference to
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 29, 2001 (the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between
the Company and Bank Leumi USA, incorporated by reference to
Exhibit 10.11 of the 2001 10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between
the Company and Bank Leumi USA, incorporated by reference to
Exhibit 10.13 of the Second Quarter 2002 Form 10-Q.
10.14 Amendment dated as of January 22, 2002 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between
the Company and Bank Leumi USA, incorporated by reference to
Exhibit 10.14 of the First Quarter 2003 Form 10-Q.
10.15 Ark Restaurants Corp. 2004 Stock Option Plan, as amended,
incorporated by reference to the Registrant's Definitive Proxy
Statement pursuant to Section 14(a) of the Securities Exchange
Act of 1934 filed on January 26, 2004.
14 Code of Ethics, incorporated by reference to Exhibit 14.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 27, 2003.
16 Letter from Deloitte & Touche LLP regarding change in certifying
accountants, incorporated by reference from the exhibit included
with the Company's Current Report on Form 8-K filed with the SEC
on January 15, 2004 and the Company's Current Report on Form
8-K/A filed with the SEC on January 16, 2004.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of J.H. Cohn LLP.
*31.1 Certification of Chief Executive Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
*32 Section 1350 Certification.
* Filed herewith.