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 December 28, 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.
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(Exact name of registrant as specified in its charter)
New York 13-3156768
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 Fifth Avenue, New York, New York 10003
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (212) 206-8800
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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 February 10, 1997
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(Common stock, $.01 par value) 3,824,999
ARK RESTAURANTS CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION: PAGE
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Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - December 28, 1996
(Unaudited) and September 28, 1996 (Unaudited) 1
Consolidated Condensed Statements of Operations and
Retained Earnings - 13-Week Periods Ended December 28, 1996
(Unaudited) and December 30, 1995 (Unaudited). 2
Consolidated Condensed Statements of Cash Flows - 13-Week Periods
Ended December 28, 1996 (Unaudited) and December 30, 1995(Unaudited) 3
Notes to Consolidated Condensed Financial
Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-7
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 8
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(Dollars in Thousands)
December 28, September 28
1996 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,370 $ 907
Accounts receivable 1,668 1,462
Current portion of long-term receivables 373 94
Inventories 933 840
Prepaid expenses 545 465
Prepaid income taxes 662 -
Other current assets 868 409
Deferred income taxes 631 631
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Total current assets 7,050 4,808
LONG-TERM RECEIVABLES 1,118 360
ASSETS HELD FOR SALE 1,481 2,614
FIXED ASSETS - At Cost:
Leasehold improvements 13,030 13,020
Furniture, fixtures and equipment 11,124 11,114
Leasehold improvements in progress 13,520 6,289
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37,674 30,423
Less accumulated depreciation and
amortization 11,787 11,325
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25,887 19,098
INTANGIBLE ASSETS - Less accumulated
amortization of $2,126 and $2,070 3,795 3,885
OTHER ASSETS 590 680
DEFERRED INCOME TAXES 934 934
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TOTAL ASSETS $40,855 $32,379
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,427 $ 2,365
Accrued expenses and other current
liabilities 5,115 3,031
Current maturities of long-term debt 171 151
Current maturities of capital lease obligations 229 241
Accrued income taxes - 324
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Total current liabilities 7,942 6,112
LONG-TERM DEBT - net of current maturities 7,458 6,253
OBLIGATIONS UNDER CAPITAL LEASES - net of current
maturities 613 662
OPERATING LEASE DEFERRED CREDIT 1,547 1,547
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000,000 shares;
issued, 5,160,336 and 4,608,882 shares 52 46
Additional paid-in capital 13,827 7,790
Retained earnings 10,663 11,216
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24,542 19,052
Less treasury stock, 1,345,337 shares 1,247 1,247
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Total shareholders' equity 23,295 17,805
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,855 $32,379
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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 amounts)
13 Weeks Ended
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December 28, December 30,
1996 1995
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NET SALES $18,167 $18,723
COST OF SALES 5,098 5,178
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GROSS RESTAURANT PROFIT 13,069 13,545
MANAGEMENT FEE INCOME 198 176
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13,267 13,721
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OPERATING EXPENSES
Payroll and payroll benefits 7,358 6,864
Occupancy 2,432 2,235
Depreciation and amortization 588 662
Other 2,550 3,041
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12,928 12,802
GENERAL AND ADMINISTRATIVE EXPENSES 1,422 1,005
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14,350 13,807
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OPERATING LOSS (1,083) (86)
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OTHER EXPENSE (INCOME):
Interest expense, net 19 99
Other income (181) (230)
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(162) (131)
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INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (921) 45
PROVISION (BENEFIT) FOR INCOME TAXES (368) 20
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NET INCOME (LOSS) (553) 25
RETAINED EARNINGS, Beginning of period 11,216 10,427
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RETAINED EARNINGS, End of period $ 10,663 $10,452
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NET INCOME (LOSS) PER SHARE ($.16) $ .01
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WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATIONS 3,370 3,191
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See notes to consolidated condensed
financial statements
2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
13 Weeks Ended
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December 28, December 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (552) $ 25
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of fixed assets 549 591
Amortization of intangibles 102 120
Gain on sale of restaurants (188) -
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable (206) 147
Decrease (Increase) in inventories (93) (50)
Decrease (Increase) in prepaid expenses (80) (148)
Decrease (Increase) in prepaid income taxes (662) (237)
Decrease (Increase) in other assets (418) 67
Increase (Decrease) in accounts payable - trade 61 (215)
Increase (Decrease) in accrued expenses and other
current liabilities 2,030 (382)
Increase (Decrease) in accrued income taxes (324) (265)
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Net cash provided by or used in operating activities 219 (347)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (7,251) (768)
Payments received on long-term receivables 21 22
Restaurant sales 267 -
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Net cash used in investing activities (6,963) (746)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 4,300 -
Principal payment on long-term debt (3,075) (44)
Proceeds from common stock private placement, net 6,043 -
Principal payment on capital lease obligations (61) (55)
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Net cash provided or used in financing activities 7,207 (99)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 463 1,192)
CASH AND CASH EQUIVALENTS, beginning of period 907 1,271
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CASH AND CASH EQUIVALENTS, end of period $ 1,370 $ 79
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 210 $ 121
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Income taxes $ 662 528
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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 December 28, 1996 and results of
operations and changes in cash flows for the periods ended December 28, 1996 and
December 30, 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 28, 1996. The results of operations for the periods ended
December 28, 1996 is not necessarily indicative of the operating results for the
full year.
2. RESTAURANT SALES
In the first quarter of fiscal 1997 the Company sold three of its smaller
restaurants located in the borough of Manhattan in New York City. The aggregate
selling price for the restaurants was $1,366,000, of which an aggregate of
$308,000 was paid in cash and the balance of $1,058,000 is payable in various
periods through December 2006. Gains of $188,000 were recognized on these sales.
3. COMMON STOCK PRIVATE PLACEMENT
In December 1996, the Company raised $6,066,000 in a private placement of
551,454 shares of its common stock at $11 per share. The proceeds of such
offering were used to repay a portion of the Company's outstanding bank and for
the payment of capital expenditures on its Las Vegas restaurant facilities at
the New York New York Hotel & Casino in Las Vegas, Nevada which opened in
January 1997.
4. 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 December
28, 1996 and December 30, 1995, no effect has been given to outstanding options
since the effect was not material.
4
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 decreased 3.0% in
the 13-week period ended December 28, 1996 from the comparable period ended
December 30,1995. The decrease for the 13-week period ended December 28, 1996
was primarily due to the sale of one restaurant in fiscal 1996 (the Whale's
Tail) and the sale of three restaurants in fiscal 1997 (Museum Cafe, Rodeo Bar &
Grill and Mackinac Bar & Grill). Same store sales in the 13-week period ended
December 28, 1996 were generally unchanged as compared to last year.
COSTS AND EXPENSES
The Company's cost of sales consists only of food and beverage costs at
restaurants and bars owned by the Company. For the 13-week period ended December
28, 1996 cost of sales as a percentage of net sales increased to 28.2% from
27.7% for the comparable period last year.
Operating expenses of the Company, consisting of restaurant payroll,
occupancy and other expenses at restaurants and bars owned by the Company, as a
percentage of net sales, increased to 71.2% for the 13-week period ended
December 28, 1996 from 68.4% last year. The increase in operating expenses as a
percentage of net sales in the 13-week period ended December 28, 1996 was
principally due to payroll expenses which increased to 40.5% of net sales as
compared to 36.7% last year. This increase in payroll expenses as a percentage
of net sales for the 13-week period was principally due to pre-opening payroll
expenses associated with the Company's Las Vegas restaurant facilities which
opened in January 1997 at the New York New York Hotel & Casino resort (See
Restaurant Expansion).
General and administrative expenses, as a percentage of net sales, were
7.8% for the 13-week period ended December 28, 1996 as compared to 5.4% last
year. If net sales at managed restaurants and bars were included in consolidated
net sales, general and administrative expenses as a percentage of net sales
would have been 6.6% for the 13-week period ended December 28, 1996 as compared
to 4.7% last year. The increase in general and administrative expenses as a
percentage of net sales for the 13-week period ended December 28, 1996 was
principally due to increases in corporate payroll, travel and other expenses
incurred in connection with the Company's Las Vegas restaurant facilities.
The Company had a net loss of $553,000 for the 13-week period ended
December 28, 1996 as compared to net income of $25,000 last year. The results
for the 13-week period ended December 28, 1996 were impacted by approximately
$1,300,000 in pre-opening expenses at the Company's Las Vegas restaurant
facilities.
During the 13-week period ended December 28, 1996 the Company managed six
restaurants and two corporate dining facilities owned by third parties. Net
sales of the managed locations were $3,271,000 during the 13-week period ended
December 28, 1996 as compared to $2,633,000 last year. These increases were
principally due to the addition of two management agreements. Net sales of these
operations are not included in consolidated net sales.
5
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 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 income tax rate has varied depending on the level of the losses
incurred at individual subsidiaries.
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.
The Company's Revolving Credit and Term Loan facility with its main bank
includes a $7,000,000 facility for use in construction of and as working capital
for the Company's recently opened Las Vegas restaurant facilities and a
$5,000,000 facility for working capital purposes at the Company's other
restaurants. The two facilities each have two year terms enabling the Company to
borrow until March 1998 at which time outstanding loans may be converted into
two year term loans. 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 and the $5,000,000 facility will convert into a two year
self-amortizing term loan. At December 28, 1996 the Company had borrowings of
$6,650,000 under this agreement.
The net cash used in investing activities for the 13-week period ended
December 28, 1996 ($7,251,000) was principally due to capital expenditures for
the Las Vegas restaurant facilities. The Company anticipates spending up to an
additional $2,000,000 in the second fiscal quarter of 1997 on these restaurant
facilities.
The net cash provided by financing activities for the 13-week period ended
December 28, 1996 includes proceeds of $6,066,000 from the private placement in
December 1996 of 551,454 shares of its common stock at $11 per share. The funds
were used to repay a portion of the Company's outstanding borrowings on its
Revolving Credit and Term Loan Facility and for the payment of capital
expenditures on the Las Vegas restaurant facilities.
At December 28, 1996, the Company had a working capital deficit of $891,000
as compared to a working capital deficit of $1,304,000 at September 28, 1996.
The restaurant business does not require the maintenance of significant
inventories or receivables, thus the Company is able to operate with minimal and
even negative working capital.
The Company also has a four year $1,300,000 Letter of Credit Facility with
its main bank for use in lieu of lease security deposits and a one year
$2,000,000 Letter of Credit Facility to be used to assure construction of the
Las Vegas restaurant facilities. At December 28, 1996 the Company had delivered
$3,025,000 in irrevocable letters of credit on these two facilities.
6
The amount of indebtedness that may be incurred by the Company is limited
by the revolving credit agreement with its main bank. Certain provisions of the
agreement may impair the Company's ability to borrow funds.
RESTAURANT EXPANSION
In January 1997 the Company opened restaurant facilities in the 2035 room
New York New York Hotel & Casino resort in Las Vegas, Nevada. The hotel/casino
is a joint venture between Primadonna Resorts, Inc. and MGM Grand, Inc. There
the Company operates a 450 seat, twenty-four hour a day restaurant (America); a
160 seat steakhouse (Gallagher's); a 120 seat Mexican restaurant (Gonzalez y
Gonzalez), the resort's room service, banquet facilities and an employee dining
facility. The Company also operates a complex of nine smaller eateries in the
hotel/casino in an area known as Village Eateries which simulate the experience
of walking through New York's Little Italy and Greenwich Village.
The Company has a lease for a new facility in the World Financial Center in
downtown New York City. The site was formerly occupied by a restaurant.
Therefore, the Company does not anticipate that it will be necessary to incur
more than $500,000 in capital expenditures and other pre-opening expenses in
connection with the opening of this restaurant. This restaurant, which will have
approximately 150 seats, is scheduled to open in the third fiscal quarter of
1997.
Although the Company is not currently committed to any other projects, the
Company is exploring additional opportunities for expansion of its business. The
Company expects to fund its existing projects through cash from operations and
existing credit facilities. Additional expansion may require additional external
financing.
7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
8
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: February 10, 1997
ARK RESTAURANTS CORP.
By /S/ Michael Weinstein
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Michael Weinstein, President
By /S/ Andrew B. Kuruc
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Andrew B. Kuruc
Vice President, Controller and
Principal Accounting Officer