SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-14030
ARK RESTAURANTS CORP.
(Exact name of registrant as specified in its charter)
New York 13-3156768
- ----------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 Fifth Avenue, New York, New York 10003
- ----------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (212) 206-8800
----------------------------
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding shares at May 10, 1996
- ---------------------------------- ----------------------------------
(Common stock, $.01 par value) 3,241,045
ARK RESTAURANTS CORP. AND SUBSIDIARIES
INDEX
PAGE
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PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - March 30, 1996 (Unaudited)
and September 30, 1995 (Unaudited) 1
Consolidated Condensed Statements of Operations and Retained
Earnings - 13-Week Periods Ended March 30, 1996 (Unaudited) and
April 1, 1995 (Unaudited) and 26-Week Periods Ended March 30, 1996
(Unaudited) and April 1, 1995 (Unaudited) 2
Consolidated Condensed Statements of Cash Flows - 26-Week Periods
Ended March 30, 1996 (Unaudited) and April 1, 1995(Unaudited) 3
Notes to Consolidated Condensed Financial Statements (Unaudited) 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-9
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(Dollars in Thousands)
March 30, September 30,
1996 1995
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,120 $ 1,271
Accounts receivable 1,499 1,274
Current portion of long-term receivables 175 163
Inventories 862 888
Prepaid expenses 672 957
Refundable and Prepaid Income Taxes 1,158 -
Other current assets 415 535
Deferred income taxes 396 396
------- -------
Total current assets 6,297 5,484
LONG-TERM RECEIVABLES 1,404 1,415
FIXED ASSETS - At Cost:
Leasehold improvements 14,482 14,421
Furniture, fixtures and equipment 12,470 12,369
Leasehold improvements in progress 219 134
------- -------
27,171 26,924
Less accumulated depreciation and
amortization 11,591 10,549
------- -------
15,580 16,375
INTANGIBLE ASSETS - Less accumulated
amortization of $2,547 and $2,488 3,851 4,336
OTHER ASSETS 478 455
DEFERRED INCOME TAXES 581 477
------- -------
TOTAL ASSETS $28,191 $28,542
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,265 $ 2,036
Accrued expenses and other current
liabilities 2,490 2,850
Current maturities of long-term debt 39 89
Current maturities of capital lease obligations 214 204
Accrued income taxes - 265
------- -------
Total current liabilities 5,008 5,444
LONG-TERM DEBT - net of current maturities 5,003 3,925
OBLIGATIONS UNDER CAPITAL LEASES - net of current
maturities 807 930
OPERATING LEASE DEFERRED CREDIT 1,537 1,537
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000,000 shares;
issued, 4,586,382 shares 46 45
Additional paid-in capital 7,615 7,482
Retained earnings 9,423 10,427
------- -------
17,084 17,954
Less treasury stock, 1,345,337 shares 1,248 1,248
------- -------
Total shareholders' equity 15,836 16,706
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,191 $28,542
======= =======
See notes to consolidated condensed
financial statements
1
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS (Unaudited)
(In Thousands, Except per share Amount)
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
------- ------- ------- -------
NET SALES $15,450 $14,759 $34,173 $31,117
COST OF SALES 4,302 4,175 9,480 8,695
------- ------- ------- -------
GROSS RESTAURANT PROFIT 11,148 10,584 24,693 22,422
MANAGEMENT FEE INCOME 454 367 630 577
------- ------- ------- -------
11,602 10,951 25,323 22,999
------- ------- ------- -------
OPERATING EXPENSES
Payroll and payroll benefits 6,441 5,757 13,305 11,627
Occupancy 2,556 2,074 4,791 4,083
Depreciation and amortization 675 520 1,337 1,014
Other 2,991 2,677 6,032 5,025
------- ------- ------- -------
12,663 11,028 25,465 21,749
GENERAL AND ADMINISTRATIVE
EXPENSES 1,225 1,094 2,230 2,189
------- ------- ------- -------
13,888 12,122 27,695 23,938
------- ------- ------- -------
OPERATING LOSS (2,286) (1,171) (2,372) (939)
------- ------- ------- -------
OTHER EXPENSE (INCOME):
Interest expense, net 111 42 210 73
Other income (344) (333) (574) (661)
------- ------- ------- ------
(233) (291) (364) (588)
------- ------- ------- ------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,053) (880) (2,008) (351)
BENEFIT FOR INCOME TAXES (1,024) (398) (1,004) (160)
------- ------- ------- -------
NET LOSS (1,029) (482) (1,004) (191)
RETAINED EARNINGS, Beginning
of period 10,452 9,597 10,427 9,306
------- ------- ------- -------
RETAINED EARNINGS, End of period $9,423 $9,115 $9,423 $9,115
======= ======= ======= =======
NET LOSS PER SHARE $(.32) $(.15) $(.31) $(.06)
===== ===== ===== =======
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATIONS 3,245 3,254 3,220 3,243
======= ======= ======= =======
See notes to consolidated condensed
financial statements
2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
26 Weeks Ended
---------------------------------
March 30, April 1,
1996 1995
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $(1,004) $ (191)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of fixed assets 1,163 891
Amortization of intangibles 240 211
Loss on sale of restaurant 97 -
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 25 (301)
Increase in inventories (12) (53)
Decrease (Increase) in prepaid expenses 285 (185)
Increase in refundable and prepaid income taxes (1,158) (338)
Decrease in other assets 90 73
Increase in accounts payable - trade 229 28
(Decrease) Increase in accrued expenses and other
current liabilities (360) 25
Decrease in accrued income taxes (265) (27)
Increase in operating lease deferred credit - 52
Increase in deferred income taxes (104) (50)
------- -------
Net cash(used in)provided by operating
activities (774) 135
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (829) (3,188)
Additions to intangible assets - (142)
Issuance of long-term receivables (42) (165)
Payments received on long-term receivables 41 73
Restaurant acquisitions - (2,335)
------- -------
Net cash used in investing activities (830) (5,757)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,500 3,500
Principal payment on long-term debt (68) (48)
Proceeds from exercise of stock options 134 75
Principal payment on capital lease obligations (113) (27)
------- ------
Net cash provided by financing activities 1,453 3,500
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (151) (2,122)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,271 2,913
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,120 $ 791
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 262 $ 154
======= =======
Income taxes $ 529 256
======= =======
See notes to consolidated condensed financial statements.
3
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements have been prepared by Ark
Restaurants Corp. (the "Company"), without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at March 30, 1996 and results of
operations and changes in cash flows for the periods ended March 30, 1996 and
April 1, 1995 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended September 30, 1995. The results of operations for the periods ended March
30, 1996 is not necessarily indicative of the operating results for the full
year.
2. LONG-TERM DEBT
In March 1996, the Company and its main bank agreed to an extension and increase
of the existing Revolving Credit and Term Loan Facility. The agreement includes
a $5,000,000 facility for working capital purposes at the Company's existing
restaurants and a $7,000,000 facility for use in construction of and as working
capital for restaurant facilities to be operated by the Company in a new
resort/casino under construction in Las Vegas, Nevada. The facilities each have
two year revolving terms at the end of which they will convert into term loans
payable over 24 months. The $5,000,000 facility will convert into a two year
self-amortizing term loan, and the $7,000,000 facility will convert into a two
year loan amortizing $6,000,000 over the two year period with the $1,000,000
balance due at maturity. Outstanding revolving loans bear interest at 1% above
the bank's prime rate until converted into term loans, at which time the
interest rate is 1 1/2% above the bank's prime rate. The Company paid a
commitment fee of $150,000 at closing and a facility of 1/2% is due on any
unused portion of the revolving credit facility.
The agreement includes a four-year $2,000,000 Letter of Credit Facility for use
for the Company's existing restaurants, and a one-year (with a six month
extension available at the Company's option), $2,000,000 Letter of Credit
Facility for the Las Vegas Project. The Company is generally required to pay
commissions of 1 1/2% per annum on outstanding letters of credit.
4
The Company's subsidiaries each guaranteed the obligations of the Company under
the foregoing facilities and granted security interests in their respective
assets as collateral for such guarantees. In addition, the Company pledged stock
of such subsidiaries as security for obligations of the Company under such
facilities.
The agreement includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, advances to managed
businesses, mergers, sale of assets, dividends, and liens on the property of the
Company. The agreement also contains financial covenants, requiring the Company
to maintain a minimum ratio of debt to net worth, minimum shareholders' equity,
and a minimum ratio of cash flow prior to debt service. The Company is in
compliance with all covenants.
3. INCOME PER SHARE OF COMMON STOCK
Per share data is based upon the weighted average number of shares of common
stock and common stock equivalents outstanding during each period; common stock
equivalents consist of dilutive stock options. For the periods ended March 30,
1996 no effect has been given to outstanding options since the effect was not
material. For the periods ended April 1, 1995 fully diluted net income per
common share and common share equivalent is not shown since the effect is not
material.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES
Net sales at restaurants and bars owned by the Company increased 4.7% in
the 13-week period ended March 30, 1996 from the comparable period ended April
1, 1995 and increased 9.8% in the 26-week period ended March 30, 1996 from the
comparable period last year. The increase in net sales for the 13-week and
26-week periods was due primarily to sales from a restaurant which the Company
did not operate in the comparable period last year (BRYANT PARK GRILL AND CAFE).
Same store sales in the 26-week period ended March 30, 1996 decreased 5.5% as
compared to the same period last year and same store sales in the 13-week period
decreased 5.6% as compared to the same period last year. Same store sales in the
13-week period ended March 30, 1996 were severely impacted by a decline in
restaurant patrons due to the numerous winter storms in the Northeast.
COSTS AND EXPENSES
The Company's cost of sales consists only of food and beverage costs at
restaurants owned by the Company. For the 13-week period ended March 30, 1996
cost of sales as a percentage of net sales was 27.8% as compared to 28.3% last
year and cost of sales as a percentage of net sales for the 26-week period ended
March 30, 1996 was 27.7% as compared to 27.9% last year.
Operating expenses of the Company, consisting of restaurant payroll,
occupancy and other expenses at restaurants owned by the Company, as a
percentage of net sales, were 82.0% for the 13-week period ended March 30, 1996
as compared to 74.7% last year and for the 26-week period ended March 30, 1996
were 74.5% as compared to 69.9% last year. This increase in operating expenses
as percentage of net sales in the 13-week period ended March 30, 1996 as
compared to last year was principally due to payroll expenses which increased to
41.7% of net sales as compared to 39.0% last year and occupancy expenses which
increased to 16.5% as compared to 14.0%. These categories were impacted by the
5.6% decline in same store sales and by costs associated with a highly seasonal
restaurant which the Company did not operate in the same period last year
(BRYANT PARK GRILL AND CAFE).
General and administrative expenses, as a percentage of net sales, were
7.9% for the 13-week period ended March 30, 1996 as compared to 7.4% last year
and for the 26-week period ended March 30, 1996 were 6.5% as compared to 7.0%
6
last year. If net sales at managed restaurants were included in consolidated net
sales, general and administrative expenses as a percentage of net sales would
have been 6.9% for the 13-week period ended March 30, 1996 as compared to 6.5%
last year and would have been 5.7% for the 26-week period ended March 30, 1996
as compared to 6.1% last year.
The Company incurred a net loss of $1,029,000 for the 13-week period ended
March 30, 1996 as compared to a net loss of $482,000 for the same period last
year and had a net loss of $1,004,000 for the 26-week period ended March 30,
1996 as compared to a net loss of $191,000 last year. The net loss for the
13-week period ended March 30, 1996 includes a charge of approximately $97,000
from the sale of the Company's restaurant in Oxnard, California (WHALE'S TAIL).
During the 13-week period ended March 30, 1996 the Company managed five
restaurants and two corporate dining facilities owned by third parties. Net
sales of these managed operations were $2,249,000 during the 13-week period
ended March 30, 1996 as compared to $2,054,000 last year and net sales were
$4,943,000 during the 26-week period ended March 30, 1996 as compared to
$4,564,000 last year. Net sales of these restaurants and bars are not included
in consolidated net sales.
INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each New
York subsidiary on a non-consolidated basis. Most of the restaurants owned or
managed by the Company are owned or managed by a separate subsidiary. For state
and local income tax purposes, the losses incurred by a subsidiary may only be
used to offset that subsidiary's income, with the exception of the restaurants
which operate in the District of Columbia. Accordingly, the Company's overall
effective rate has varied depending on the level of the losses incurred at
individual subsidiaries.
As a result of the enactment of the Revenue Reconciliation Act of 1993, the
Company is entitled, to a tax credit based on the amount of FICA taxes paid by
the Company with respect to the tip income of restaurant service personnel. The
Company estimates that this credit will be in excess of $300,000 for the current
year.
7
LIQUIDITY AND SOURCES OF CAPITAL
The Company's primary source of capital is cash provided by operations and
funds available from the $12,000,000 revolving credit agreement with its main
bank. The Company utilizes capital primarily to fund the cost of developing and
opening new restaurants and acquiring existing restaurants.
At March 30, 1996 the Company had working capital of $1,289,000 as compared
to working capital of $40,000 at September 30, 1995.
In March 1996, the Company and its main bank agreed to an extension and
increase of the existing Revolving Credit and Term Loan Facility. The agreement
includes a $5,000,000 facility for working capital purposes at the Company's
existing restaurants and a $7,000,000 facility for use in construction of and as
working capital for restaurant facilities to be operated by the Company in a new
resort/casino under construction in Las Vegas, Nevada (See Restaurant Expansion
below). The two facilities each have two year terms at the end of which they
will convert into two year term loans. The $5,000,000 facility will convert into
a two year self-amortizing term loan. The $7,000,000 facility will convert into
a two year loan amortizing $6,000,000 over the two year period with the balance
of $1,000,000 paid at maturity. At March 30, 1996 the Company had borrowings
outstanding of $5,000,000 under this agreement.
The Company also has a four year $2,000,000 letter of credit facility for
use in lieu of lease security deposits and a one year (extendible for an
additional six months) $2,000,000 letter of credit facility to be used to assure
construction of the Las Vegas restaurants.
The amount of indebtedness that may be incurred by the Company is limited
by the revolving credit agreement with its main bank. Certain provisions of the
agreement may impair the Company's ability to borrow funds.
The Company believes that its cash flow from operations and available
borrowings under its credit facility will be adequate to meet its currently
anticipated obligations (including the anticipated costs associated with the
construction of the Las Vegas facilities). If either the costs associated with
the construction of the Las Vegas facilities should substantially exceed the
current estimates or if cash provided by operations is substantially lower than
anticipated, the Company may have to obtain additional external financing.
8
RESTAURANT EXPANSION
The Company has an agreement with New York, New York Hotel & Casino, a
joint venture between Primadonna Resorts, Inc. and MGM Grand, Inc. to design,
build and operate a group of restaurants in the 2,100 room Las Vegas resort
casino which is scheduled to open in December 1996. The Company will build a
450-seat restaurant (AMERICA), a 150-seat steakhouse (GALLAGHER'S) and a group
of small fast food restaurants in a food court with a New York theme. The
steakhouse will be operated under a license agreement from the owner of the New
York restaurant of that name. In addition, the Company will operate the hotel's
room service, its banquet facilities and its employee cafeteria. The Company
expects that its capital commitments for these facilities will be between
$9,000,000 and $10,000,000 which the Company intends to finance principally
through the credit agreement and, to a lesser extent, through cash from
operations.
In the third quarter of fiscal 1996, the Company entered into agreements to
purchase two restaurants (JIM MCMULLEN and MACKINAC BAR & GRILL). The Company
agreed to pay $550,000 payable over four years with interest at 8.5% per annum
for one restaurant (JIM MCMULLEN). The Company had previously leased the
furniture, fixtures and leasehold improvements of such restaurant for $900,000
under a three year term which ended in March 1996. The Company agreed to
purchase the other restaurant, which it had previously managed (MACKINAC BAR &
GRILL), for $988,000 of which $108,000 is payable in cash and $880,000 is
payable by the cancellation of advances currently classified as long-term
receivables.
Although the Company is not currently committed to any other projects, the
Company is exploring additional opportunities for expansion of its business.
Additional expansion may require additional external financing.
9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant, filed on January
4, 1983, incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed on October 11, 1985, incorporated by
reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment to Certificate of Incorporation of the
Registrant filed on July 21, 1988, incorporated by reference to
Exhibit 3.3 to Exhibit 3.3 to the 1994 10-K.
3.4 By-Laws of the Registrant, incorporated by reference to Exhibit
3.4 to the 1994 10-K.
*10.52 Second Amended and Restated Credit Agreement dated as of March 5,
1996 between the Company and Bank Leumi Trust Company of New
York.
*10.53 Ark Restaurants Corp. 1996 Stock Option Plan.
*27 Financial Data Schedule pursuant to Article 5 of Regulation S-X
filed with EDGAR version only.
(b) Reports on Form 8-K - none.
*Filed herewith.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 13, 1996
ARK RESTAURANTS CORP.
By /S/ Michael Weinstein
---------------------
Michael Weinstein, President
By /S/ Andrew B. Kuruc
--------------------
Andrew B. Kuruc
Vice President, Controller and
Principal Accounting Officer
Exhibit Index
Page
Exhibits numbers
3.1 Certificate of Incorporation of the Registrant, filed on
January 4, 1983, incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Registrant filed on October 11, 1985,
incorporated by reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment to Certificate of Incorporation of
the Registrant filed on July 21, 1988, incorporated by
reference to Exhibit 3.3 to Exhibit 3.3 to the 1994 10-K.
3.4 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.4 to the 1994 10-K.
*10.52 Second Amended and Restated Credit Agreement dated as of March
5, 1996 between the Company and Bank Leumi Trust Company of
New York.
*10.53 Ark Restaurants Corp. 1996 Stock Option Plan.
*27 Financial Data Schedule pursuant to Article 5 of Regulation
S-X filed with EDGAR version only.
*Filed herewith.