SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 3, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9453
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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 (IRS Employer Identification Number)
incorporation or organization)
85 Fifth Avenue, New York, N.Y. 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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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value NASDAQ/NMS
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X ].
The aggregate market value at December 15, 1998 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 $24,314,080. Solely for the purposes of this
calculation, shares held by directors and officers of the Registrant have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: At December 15, 1998, there
were outstanding 3,653,499 shares of the Registrant's Common Stock, $.01 par
value.
Document Incorporated by Reference: Certain portions of the Registrant's
definitive proxy statement to be filed not later than February 1, 1999 pursuant
to Regulation 14A are incorporated by reference in Items 10 through 13 of Part
III of this Annual Report on Form 10-K.
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PART I
Item 1. Business
General
Ark Restaurants Corp. (the "Registrant" or the "Company") is a holding
company which, through subsidiaries, owns and operates 21 restaurants and
manages five restaurants owned by others. Fourteen of the restaurants owned or
managed by the Company are located in New York City, three are located in
Washington, D.C., four are located in Las Vegas, Nevada (three of which are
within the New York-New York Hotel & Casino), three are located in Boston,
Massachusetts, and one is located in each of McLean, Virginia and Islamorada,
Florida. At the New York-New York Hotel & Casino, the Company also operates the
room service, banquet facilities and employee dining room and a complex of nine
smaller eateries.
The Company's other operations include catering businesses in New York
City and Washington, D.C., as well as wholesale and retail bakeries in New York
City, and a cafe at the Warner Bros. studio store in New York City.
The Company was formed in 1983 to concentrate the ownership of four
restaurants previously operated by the Company's principals. Until 1987 all of
the Company's facilities were located in the New York City metropolitan area. In
1987, three facilities were opened in Boston, Massachusetts. Since then the
Company has opened five facilities in the Washington, D.C. metropolitan area
(one of which has been sold), one in Islamorada, Florida and one in Jersey City,
New Jersey (a management agreement that was terminated in fiscal 1998). In
January 1997, the Company opened a group of restaurants in the new 2,100-room
hotel known as the New York-New York Hotel & Casino in Las Vegas, Nevada.
In addition to the shift from a Manhattan-based operation, the nature
of the facilities operated by the Company has shifted from smaller, neighborhood
restaurants to larger, destination restaurants intended to benefit from high
patron traffic attributable to the uniqueness of the restaurant's location. Most
of the restaurants opened in recent years are of the latter description and the
Company intends to concentrate on developing or acquiring similar facilities in
the future. The Company opened two such restaurants in fiscal 1995 (B. Smith's
in Washington and Bryant Park Grill and Cafe in New York) one in fiscal 1997
(the restaurant operations at the New York-New York Hotel & Casino in Las
Vegas, Nevada) and two in fiscal 1998 (the Stage Deli located at the Forum Shops
in Las Vegas, Nevada and Red located at the South Street Seaport in New York).
In fiscal 1998, the Company continued its efforts to sell some of its smaller,
neighborhood restaurants. Three such facilities were sold in fiscal 1998 and two
have been sold since the end of fiscal 1998.
The names and themes of each of the Company's restaurants are
different except for the Company's four America restaurants, two Sequoia
restaurants and two Gonzalez y Gonzalez restaurants. The menus in the Company's
restaurants are extensive, offering a wide variety of high quality foods at
generally moderate prices. One of the Company's restaurants, Lutece, may be
classified as expensive. The atmosphere at many of the restaurants is lively and
extremely casual. Most of the restaurants have separate bar areas utilized by
diners awaiting tables. A majority of the net sales of the Company is derived
from dinner as opposed to lunch service. Most of the restaurants are open seven
days a week and most serve lunch as well as dinner.
While decors differ from restaurant to restaurant, interiors are
marked by distinctive architectural and design elements which often incorporate
dramatic interior open spaces and extensive glass exteriors. The wall
treatments, lighting and decorations are typically vivid, unusual and, in some
cases, highly theatrical.
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The following table sets forth certain information with respect to the
Company's facilities currently in operation.
Seating
Capacity(2)
Restaurant Size Indoor- Lease
Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3)
---- -------- -------------- ------------- --------- -------------
Metropolitan Cafe First Avenue 1982 4,000 180-(50) 2006
New York, New York
(between 52nd and 53rd
Streets)
Ernie's Broadway 1983 6,600 300 2008
New York, New York
(between 75th and 76th
Streets)
America 18th Street 1984 9,600 350 2004
New York, New York
(between 5th Avenue
and Broadway)
Woody's (4) Seventh Avenue South 1986 1,700 90 2001
New York, New York
(between Charles and
10th Streets)
B. Smith's Eighth Avenue 1986 8,000 400 2011(5)
New York, New York
(at 47th Street)
The Marketplace Faneuil Hall Market 1987 3,000 100 2000
Cafe (4) Boston, Massachusetts
El Rio Grande Third Avenue 1987 4,000 160 2014
(4)(6) New York, New York
(between 38th and 39th
Streets)
The Brewskeller Faneuil Hall Market 1987 1,500 50 2000
Pub (4) Boston, Massachusetts
Gonzalez y Broadway 1989 6,000 250 1999
Gonzalez New York, New York
(between Houston and
Bleeker Streets)
America Union Station 1989 10,000 400 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600-(400) 2005
Washington, D.C.
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Seating
Capacity(2)
Restaurant Size Indoor- Lease
Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3)
---- -------- -------------- ------------- --------- -------------
Sequoia South Street Seaport 1991 12,000 300-(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2004
New York, New York
(between 76th and 77th
Streets)
Louisiana Broadway 1992 4,500 130 1999
Community Bar & New York, New York
Grill (between Houston &
Bleeker Streets)
Savannah (4) Faneuil Hall Market 1987 2,500 130 2000
Boston, Massachusetts
America Tyson's Corner 1994 11,000 400 2014
McLean, Virginia
Lutece East 50th Street 1994 2,500 92 2019
New York, New York
(between 2nd and 3rd
Avenues)
Lorelei Islamorada, Florida 1994 10,000 400 2029
Restaurant and
Cabana Bar
Columbus Bakery Columbus Avenue 1988 3,000 75 2002
New York, New York
(between 82nd and 83rd
Streets)
Bryant Park Bryant Park 1995 25,000 180-(820) 2025
Grill & Cafe New York, New York
Columbus Bakery First Avenue 1995 2000 75 2006
New York, New York
(between 52nd and 53rd
Streets)
Granny's (4) Warner Bros. 1996 1,000 48 (7)
Studio Store
New York, New York
(at 57th Street)
America New York-New York 1997 20,000 450 2017(8)
Hotel & Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,000 160 2017(8)
Hotel & Casino
Las Vegas, Nevada
Gonzalez y New York-New York 1997 2,000 200 2017(8)
Gonzalez Hotel & Casino
Las Vegas, Nevada
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Seating
Capacity(2)
Restaurant Size Indoor- Lease
Name Location Year Opened(1) (Square feet) (Outdoor) Expiration(3)
---- -------- -------------- ------------- --------- -------------
Village Eateries New York-New York 1997 6,300 400(10) 2017(8)
(9) Hotel & Casino
Las Vegas, Nevada
The Grill Room World Financial Center 1997 10,000 250 2012
New York, New York
The Stage Deli Forum Shops 1998 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013(5)
New York, New York
(1) Restaurants are, from time to time, renovated and/or renamed. "Year
Opened" refers to the year in which the Company or an affiliated
predecessor of the Company first opened, acquired or began managing a
restaurant at the applicable location, notwithstanding that the
restaurant may have been renovated and/or renamed since that date.
(2) Seating capacity refers to the seating capacity of the indoor part of a
restaurant available for dining in all seasons and weather conditions.
Outdoor seating capacity, if applicable, is set forth in parentheses and
refers to the seating capacity of terraces and sidewalk cafes which are
available for dining only in the warm seasons and then only in clement
weather.
(3) Assumes the exercise of all available lease renewal options.
(4) Restaurant owned by a third party and managed by the Company. Management
fees earned by the Company are based either on a percentage of cash flow
of the restaurant or a fixed amount or a combination of the two.
(5) Includes one five year renewal option exercisable by the Company.
(6) The Company owns a 19% interest in the partnership which owns
El Rio Grande.
(7) The management agreement for this facility is terminable by either
party upon 60 days' notice.
(8) 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 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 such
restaurant.
(9) The Company operates nine small fast food restaurants in a food court at
this hotel facility. The Company also operates the hotel's room service,
banquet facilities and employee cafeteria.
(10) Represents common area seating.
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Restaurant Expansion
During the second quarter of fiscal 1998, the Company purchased the
Stage Deli in the Forum Shops at Caesar's Shopping Center in Las Vegas, Nevada.
This 200-seat restaurant operates under a license agreement with the owner of
the original Stage Deli in New York City. During the fourth quarter of fiscal
1998, the Company opened its second restaurant at the South Street Seaport in
New York City. This facility, Red, is a 7,000 square foot restaurant with the
Southwestern theme.
During the second quarter of fiscal 1997, the Company's facilities at
the New York-New York Hotel & Casino in Las Vegas, Nevada opened. The Company's
facilities consist of a 450-seat restaurant (named America and modeled after the
Company's other America restaurants), a 160-seat steakhouse (named Gallagher's
under a license agreement from the owner of the New York restaurant of that
name), a 120-seat restaurant (named Gonzalez y Gonzalez and modeled after the
Company's New York restaurant of the same name) and a group of nine small fast
food restaurants in a food court with a New York theme. In addition, the Company
operates the hotel's room service, its banquet facilities and its employee
cafeteria.
The restaurant facilities at the New York-New York Hotel & Casino
represent the Company's first effort at designing, constructing and operating
restaurants in Las Vegas and the first such facilities in conjunction with a
large-scale hotel and casino operation. The number of patrons served at the
various facilities at the New York-New York Hotel & Casino far exceeds the
number of patrons served by the Company in any other single location.
During the third quarter of fiscal 1997, the Company opened The Grill
Room at a 10,000 square foot site in the World Financial Center in downtown New
York City.
During the third quarter of fiscal 1996, the Company purchased two
restaurants, Jim McMullen and Mackinac Bar and Grill, which it had been managing
and which the Company subsequently sold. During the first quarter of fiscal
1995, the Company opened its second B. Smith's, this one in Union Station,
Washington D.C. This facility was sold to the manager of the restaurant in
December 1998.
During the first quarter of fiscal 1996, the Company opened a bakery
(another Columbus Bakery), operating on a retail basis similar to that of the
existing Columbus Bakery on Columbus Avenue in Manhattan, in premises adjacent
to the Company's Metropolitan Cafe restaurant on First Avenue in Manhattan. Both
Columbus Bakery facilities supply baked goods to other facilities of the Company
in Manhattan and also sell at retail, coffee, baked goods and prepared foods on
a "take out" basis or for on premise consumption.
The Company is a party to a joint venture agreement with Sony Theatres'
Loeks Star Partners and Millennium Partners to develop and operate four
restaurants containing a total of approximately 50,000 square feet at a large
theater development in Southfield, Michigan. The Company anticipates that its
share of the required capital contributions to meet the construction costs,
initial inventories and pre-opening expenses will be $6,500,000. The project is
currently in the design phase and the Company expects to open such restaurants
in the third quarter of fiscal 1999.
The Company recently entered into a lease for a 10,000 square foot site
of Union Station in Washington, D.C. where the Company operates two restaurants.
The Company expects to open a 500 seat restaurant in the second quarter of
fiscal 1999.
The opening of a new restaurant is invariably accompanied by substantial
pre-opening expenses and early operating losses associated with the training of
personnel, excess kitchen costs and costs of supervision and other expenses
during the pre-opening period and during a post-opening "shake out" period until
operations can be
-7-
considered to be functioning normally. The amount of such pre-opening expense
and early operating loss can generally be expected to depend upon the size and
complexity of the facility being opened. The Company estimates that such
pre-opening expenses and early operating losses were approximately $200,000 in
fiscal 1998, $2,000,000 in fiscal 1997 and approximately $200,000 in fiscal
1996.
The Company's restaurants generally do not achieve substantial increases
from year to year in net sales or profits. The Company will have to continue to
open new and successful restaurants or expand existing restaurants to achieve
significant increases in net sales or to replace net sales of restaurants which
experience declining popularity or which close because of lease expirations or
other reasons. After a restaurant is opened, there can be no assurance that such
restaurant will be successful, particularly since in many instances the Company
will not operate new restaurants under a tradename currently used by the
Company, thereby requiring each new restaurant to establish its own identity.
The Company intends to continue to direct its restaurant expertise and
financial resources in developing larger restaurants benefitting from the high
patron traffic of unique locations, such as the Sequoia and Red restaurants in
the South Street Seaport in New York, the Sequoia restaurant in Washington
Harbour in Washington, the America restaurant in Union Station in Washington,
the Bryant Park facilities in New York and the Las Vegas facilities.
Nevertheless, the Company also intends to take advantage of other opportunities
considered to be favorable when they occur, such as the acquisition of the
highly regarded restaurant Lutece.
Recent Restaurant Dispositions
In the third quarter of fiscal 1996, the Company sold the Whale's Tail
restaurant in Oxnard, California, which the Company had acquired in November
1993.
In the first quarter of fiscal 1997, the Company sold three of its
smaller restaurants (Mackinac Bar & Grill, The Museum Cafe and Albuquerque
Eats/The Rodeo Bar), each of which was operating at a loss at the time of its
sale. In fiscal 1998, the Company sold three of its smaller restaurants (Jim
McMullen, An American Place and Beekman 1776 Tavern). Since the end of fiscal
1998, the Company has sold two of its smaller restaurants (Perretti's and B.
Smith's in Washington, D.C.).
Restaurant Management
Each restaurant is managed by its own manager and has its own chef. Food
products and other supplies are purchased from various unaffiliated suppliers,
in most cases by the Company's headquarters personnel. Each of the Company's
restaurants has two or more assistant managers and assistant chefs. The
executive chef department designs menus and supervises the kitchens. Financial
and management control is maintained at the corporate level through the use of
an automated data processing system that includes centralized accounting and
reporting. The Company has developed its own proprietary software which
processes information input daily at the Company's restaurants. The Company
believes that the information generated by this process enables it to monitor
closely the activities at each restaurant and enhances the Company's ability to
effectively manage its restaurants.
Employees
At December 5, 1998, the Company employed 2,256 persons (including
employees at managed facilities), 39 of whom were headquarters personnel, 155 of
whom were restaurant management personnel, 687 of whom were kitchen personnel
and 1,375 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
-8-
of the Company and the restaurant industry generally because a large percentage
of restaurant personnel are paid at or slightly above the minimum wage. With the
exception of the employees at Lutece in New York, the Company's employees are
not covered by a collective bargaining agreement. The Company believes its
employee relations are satisfactory.
Government Regulation
The Company is subject to various federal, state and local laws and
regulations affecting its business, including a variety of regulatory provisions
relating to the wholesomeness of food, sanitation, health, safety and licensing
in the sale of alcoholic beverages. A number of the Company's restaurants have
open or enclosed outdoor cafes which require the approval of, or licensing by, a
number of governmental agencies. The suspension by any regulatory agency of the
food service or the liquor license of any of the Company's restaurants would
have a material adverse effect upon the affected restaurant and may adversely
affect the Company as a whole.
The New York State Liquor Authority must approve any transaction in
which a shareholder of the Company increases his holdings to 10% or more of the
outstanding capital stock of the Company and any transaction involving 10% or
more of the outstanding capital stock of the Company.
Seasonal Nature of Business
The Company's business is highly seasonal. The second quarter of the
Company's fiscal year, consisting of the non-holiday portion of the cold weather
season in New York, Boston and Washington (January, February and March), is the
poorest performing quarter. The Company achieves its best results during the
warm weather, attributable to the Company's extensive outdoor dining
availability, particularly at Bryant Park and Sequoia in Washington (the
Company's largest restaurants) and the Company's outdoor cafes. The Company's
facilities in Las Vegas operate on a more level basis through the year.
Forward-Looking Statements
This report contains forward looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as throughout this report
generally. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below.
Competition. The restaurant business is intensely competitive and
involves an extremely high degree of risk. The Company believes that a large
number of new restaurants open each year and that a significant number of them
do not succeed. Even successful restaurants rapidly can lose popularity due to
changes in consumer tastes, turnover in personnel, the opening of competitive
restaurants, unfavorable reviews and other factors. There can be no assurance
that the Company's existing restaurants will retain their current popularity or
that new restaurants opened by the Company will be successful. There is active
competition for competent chefs and management personnel and intense competition
among major restaurateurs and food service companies for the larger, unique
sites suitable for restaurants.
-9-
Importance of New Restaurants. The Company's restaurants generally do
not achieve substantial increases from year to year in net sales or profits. The
Company will have to continue to open new and successful restaurants or expand
existing restaurants to achieve significant increases in net sales or to replace
net sales of restaurants which experience declining popularity or which close
because of lease expirations or other reasons. The acquisition or construction
of new restaurants requires significant capital resources. New large scale
projects that have been the focus of the Company's efforts in recent years would
likely require additional financing.
After a restaurant is opened, there can be no assurance that such
restaurant will be successful, particularly since in many instances the Company
will not operate new restaurants under a tradename currently used by the
Company, thereby requiring each new restaurant to establish its own identity.
Dependence on Key Personnel. The success of the Company depends to a
significant extent upon the performance of senior management and in particular
on the services of Michael Weinstein, President of the Company. The loss of the
services of Mr. Weinstein would have a material adverse effect on the Company.
Government Regulation. The Company is subject to various Federal, state
and local laws and regulations affecting its business, including regulatory
provisions relating to the wholesomeness of food, sanitation, health, safety and
licensing in the sale of alcoholic beverages. The suspension by any regulatory
agency of the food service or the liquor license of any of the Company's
restaurants would have a material adverse effect upon the affected restaurant
and may adversely affect the Company as a whole. The wholesomeness of food
served at the Company's restaurants is dependent in part upon third party
purveyors.
Item 2. Properties
The Company's restaurant facilities identified in the chart above and
its executive offices are occupied under leases. Most of the Company's
restaurant leases provide for the payment of base rents plus real estate taxes,
insurance and other expenses and, in certain instances, for the payment of a
percentage of the Company's sales at such facility. These leases (excluding
leases for managed restaurants) have initial terms expiring as follows:
Years Lease Number of
Term Expire Facilities
----------- ----------
1999-2000 5
2001-2005 5
2006-2010 13
2011-2015 3
2016-2020 1
2021-2025 1
2026-2030 1
The Company's executive, administrative and clerical offices, located
in approximately 8,500 square feet of office space at 85 Fifth Avenue, New York,
New York, are occupied under a lease which expires in October 2008, which
includes one five-year renewal option. The Company maintains an office in
Washington, D.C. for its catering operations under a short-term lease.
For information concerning the Company's future minimum rental
commitments under non-cancelable operating leases, see Note 8 of Notes to
Consolidated Financial Statements.
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Item 3. Legal Proceedings
In the ordinary course of its business, the Company is a party to
various lawsuits arising from accidents at its restaurants and workmen's
compensation claims, which are generally handled by the Company's insurance
carriers.
The employment by the Company of management personnel, waiters,
waitresses and kitchen staff at a number of different restaurants has resulted
in the institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe that any
of such suits will have a materially adverse effect upon the Company, its
financial condition or operations.
A lawsuit was commenced against the Company in October 1997 in the
District Court for the Southern District of New York by 44 present and former
employees alleging various violations of Federal wage and hour laws. The
complaint seeks an injunction against further violations of the labor laws and
payment of unpaid minimum wages, overtime and other allegedly required amounts,
liquidated damages, penalties and attorneys fees. The Company believes that most
of the claims asserted in this litigation, including those with respect to
minimum wages, are insubstantial. The Company believes that there were certain
violations of overtime requirements, which have today been largely corrected,
for which the Company will have liability. While the Company does not believe
that the liability to any single employee for overtime violations will be
consequential to it, the Company's aggregate liability will depend in large part
on the number of persons who "opt-in" to the lawsuit asserting similar
violations. This uncertainty prevents the Company from making any reasonable
estimate of its ultimate liability. However, based upon information available to
the Company at this time, including the fact that as of December 15, 1998 less
than two percent (2%) of the persons eligible have in fact opted in, the Company
does not believe that the amount of liability which may be sustained in this
action will have a materially adverse effect on its business and financial
condition.
A lawsuit was commenced against the Company in April 1997 in the
District Court for Clark County, Nevada by two former employees and one current
employee of the Company's Las Vegas subsidiary alleging that (i) the Company
forced food service personnel at the Company's Las Vegas restaurant facilities
to pay a portion of their tips back to the Company in violation of Nevada law
and (ii) the Company failed to timely pay wages to terminated employees. The
action was brought as a class action on behalf of all similarly situated
employees. The Company believes that the first allegation is without
merit and that the Company will have no liability. The Company also believes
that its liability, if any, from an adverse result in connection with the second
allegation would be inconsequential. The Company intends to vigorously defend
against these claims.
In addition, several unfair labor practice charges have been filed
against the Company before the National Labor Relations Board with respect to
the Company's Las Vegas subsidiary. One consolidated complaint alleged that the
Company unlawfully terminated seven employees and disciplined seven other
employees allegedly in retaliation for their Union activities. An Administrative
Law Judge (ALJ) found that five employees were terminated unlawfully and two
were discharged for valid reasons. As far as the discipline, the Judge found
that the Company acted legally in disciplining four employees but not lawfully
with respect to three employees. The Company has appealed the adverse rulings of
the ALJ to the National Labor Relations Board in Washington, D.C. The Company
believes that there are reasonable grounds for obtaining a reversal of the
unfavorable findings by the ALJ. Another consolidated complaint issued recently
alleges that four employees were terminated and three other employees
disciplined because of their union activities. A hearing is scheduled on these
new charges in January 1999. The Company believes that these affected employees
were terminated or disciplined for appropriate reasons such as violating
reasonable work rules.
The Company does not believe that an adverse outcome in any of the
unfair labor practice charges will have a material adverse effect upon the
Company's financial condition or operations. The Company believes that these
unfair labor practice charges and the litigation pending in Nevada described
above are part of an ongoing campaign by the Culinary Workers Union which is
seeking to represent employees at the Company's Las Vegas restaurants. However,
rather than pursue the normal election process pursuant to which employees are
given the freedom to choose whether they should be represented by a union, a
process which the Company supports, the Company believes the union is seeking to
achieve recognition as the bargaining agent for such employees through a
campaign directed not at the Company's employees but at the Company itself and
its stockholders. The Company intends to continue to support the right of its
employees to decide such matters and to oppose the efforts of the Culinary
Workers Union to circumvent that process.
-11-
An action was commenced in May 1998 in Superior Court of the District
of Columbia against the Company and its Washington, D.C. subsidiaries by seven
present and former employees of the restaurants owned by such subsidiaries
alleging violations of the District of Columbia Wage & Hour Act relating to
minimum wages and overtime compensation. While the action is in its early
stages, the Company does not believe that its liability, if any, from an adverse
result in this matter would have a material adverse effect upon its business or
financial condition.
A lawsuit was commenced against the Company in October 1998 in
Superior Court of Los Angeles County, California by a former employee alleging
that her employment was terminated on the basis of her age in violation of the
California Fair Employment and Housing Act. The Company believes that the
allegations are without merit.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
The following table sets forth the names and ages of executive
officers of the Company and all offices held by each person:
Name Age Positions and Offices
---- --- ---------------------
Michael Weinstein 55 President
Vincent Pascal 55 Vice President and
Secretary
Robert Towers 51 Vice President and
Treasurer
Andrew Kuruc 40 Vice President and
Controller
Mitchell Levy 37 Vice President
Each executive officer of the Company serves at the pleasure of the Board of
Directors and until his successor is duly elected and qualifies.
Michael Weinstein has been President and a director of the Company
since its inception in January 1983. Since 1978, Mr. Weinstein has been an
officer, director and 25% shareholder of Easy Diners, Inc., a restaurant
management company which operates three restaurants in New York City.
Easy Diners, Inc. is not a parent, subsidiary or other affiliate of the
Company. Mr. Weinstein spends substantially all of his business time on
Company-related matters.
Vincent Pascal was elected Vice President, Assistant Secretary and
a director of the Company in October 1985. Mr. Pascal became Secretary of
the Company in January 1994.
-12-
Robert Towers has been employed by the Company since November 1983 and
was elected Vice President, Treasurer and a director in March 1987.
Andrew Kuruc has been employed as Controller of the Company since April
1987 and was elected as a director of the Company in November 1989.
Mitchell Levy has been employed as Vice President of the Company since
March 1998. For more than five years prior to that time, Mr. Levy was a partner
in the law firm of Solomon, Green & Ostrow.
-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 ("Nasdaq") under the
symbol "ARKR". The high and low sale prices for the Common Stock from March
31, 1996 through October 3, 1998 are as follows:
Calendar 1996 High Low
- ------------- ---- ---
Third Quarter 10 7 3/4
Fourth Quarter 12 3/4 9 1/4
Calendar 1997
- -------------
First Quarter 15 1/4 10 1/4
Second Quarter 11 1/4 7 5/8
Third Quarter 11 1/2 8 1/4
Fourth Quarter 12 1/2 10 3/4
Calendar 1998
- -------------
First Quarter 13 1/8 11 1/2
Second Quarter 12 1/8 11
Third Quarter 12 3/8 9 1/4
Dividends
The Company has not paid cash dividends since its inception and
does not intend to pay dividends in the foreseeable future. Under the terms of
the Credit Agreement between the Company and its main lender, the Company may
pay cash dividends and redeem shares of Common Stock in any fiscal year only to
the extent of an aggregate amount equal to 20% of the Company's consolidated
operating cash flow for such fiscal year.
Number of Shareholders
As of December 11, 1998, there were 86 holders of record of the
Company's Common Stock.
-14-
Item 6. Selected Consolidated Financial Data
The following table sets forth certain financial data for the fiscal years ended
1994 through 1998. This information should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto appearing at
page F-1.
Year Ended
-----------------------------------------------------------------------------------------
October 3, September 27, September 28, September 30, October 1,
1998 1997 1996 1995 1994
OPERATING DATA:
Net sales $ 117,398,453 $ 104,326,386 $ 76,795,940 $ 73,026,907 $ 60,404,339
Gross restaurant profit 86,132,751 75,874,499 55,934,475 53,001,963 43,562,653
Operating income 7,589,465 2,785,713 497,996 960,794 840,452
Other income, net 91,417 96,550 743,615 937,763 507,200
Income before provision
for income taxes and
extraordinary item 7,680,882 2,882,263 1,241,611 1,898,557 1,347,652
Income before
extraordinary item 4,612,141 1,737,655 788,762 1,121,126 643,032
NET INCOME 4,612,141 1,737,655 788,762 1,121,126 1,150,802
Income per share
before extraordinary
item and cumulative
effect of accounting
change:
Basic $ 1.21 $ 0.47 $ 0.24 $ 0.34 $ 0.20
Diluted $ 1.20 $ 0.46 $ 0.24 $ 0.34 $ 0.20
NET INCOME
PER SHARE:
Basic $ 1.21 $ 0.47 $ 0.24 $ 0.34 $ 0.36
Diluted $ 1.20 $ 0.46 $ 0.24 $ 0.34 $ 0.36
Weighted average
number of shares
used in computation 3,852,019 3,742,811 3,272,857 3,252,669 3,223,833
BALANCE SHEET DATA
(end of period):
Total assets 43,102,179 41,268,098 32,379,479 28,541,920 21,768,747
Working capital (deficit) (719,343) (2,373,859) (1,303,920) 40,996 1,517,601
Long-term debt 5,014,634 6,126,797 6,403,866 4,014,162 761,386
Shareholders' equity 29,062,140 25,888,880 17,804,394 16,706,301 15,210,202
Shareholders' equity
per share 7.54 6.92 5.44 5.14 4.72
Facilities in operation
at end of year, including
managed 42 46 32 32 27
-15-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30.
The fiscal year ended October 3, 1998 included 53 weeks while the fiscal years
ended September 27, 1997 and September 28, 1996 included 52 weeks.
Net Sales
Net sales at restaurants owned by the Company increased by 12.5% from
fiscal 1997 to fiscal 1998 and by 35.8% from fiscal 1996 to fiscal 1997. The
increase in fiscal 1998 was substantially due to sales from the food and
beverage operations in the New York-New York Hotel & Casino resort in Las Vegas
("the Las Vegas facilities") which opened in January 1997. At the Las Vegas
facilities the Company operates a 450 seat, twenty four hour a day restaurant
(America); a 160 seat steakhouse (named Gallagher's under a license agreement
with the owner of the New York restaurant of that name); a 200 seat Mexican
restaurant (Gonzalez y Gonzalez); the resort's room service, banquet facilities
and an employee dining facility. The Company also operates a complex of nine
smaller eateries (Village Eateries) in the resort which simulate the experience
of walking through New York City's Little Italy and Greenwich Village. The
increase in fiscal 1998 was also due in part to the acquisition of a restaurant
located in the Forum Shops at Caesar's Shopping Center in Las Vegas (the Stage
Deli of Las Vegas) and to the first full operating year of a restaurant which
the Company opened in fiscal 1997 (The Grill Room). Same store sales in fiscal
1998 increased by 3.1% principally due to increased customer counts.
The increase in fiscal 1997 was primarily due to sales from the Las
Vegas facilities which opened in January 1997. Same store sales in fiscal 1997
increased by 2.6% principally due to increased customer counts.
Costs and Expenses
The Company's cost of sales consists principally of food and beverage
costs at restaurants owned by the Company. Cost of sales as a percentage of net
sales was 26.6% in fiscal 1998, 27.3% in fiscal 1997, and 27.2% in fiscal 1996.
Cost of sales in fiscal 1997 were impacted by higher cost of sales experienced
during the early operating period at the Company's Las Vegas operations.
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 62.7% in fiscal 1998, 65.9% in fiscal 1997 and
67.9% in fiscal 1996. This decrease in operating expenses in fiscal 1998 as
compared to fiscal 1997 was principally due to efficiencies achieved at the
Company's Las Vegas facilities and to a lesser extent to a benefit from the 3.1%
increase in same store sales at the Company's other facilities. The decrease in
operating expenses in fiscal 1997 as compared to fiscal 1996 was principally due
to benefits achieved from the sale of three restaurants in fiscal 1997 which had
operated at a loss in fiscal 1996 and to a lesser extent to a benefit from the
2.6% increase in same store sales. Restaurant payroll was 35.1% of net sales in
fiscal 1998, 36.9% in fiscal 1997 and 36.1% in fiscal 1996. The increase in
fiscal 1997 was principally due to higher payroll costs at the Company's Las
Vegas food and beverage operations as compared to the Company's other operations
and to a lesser extent from increases in minimum wage rates. Occupancy expenses
(consisting of rent, rent taxes, real estate taxes, insurance and utility costs)
were 11.7% in fiscal 1998, 12.5% in fiscal 1997 and 12.8% in fiscal 1996.
The Company incurred pre-opening expenses and early operating losses
at newly opened restaurants of approximately $200,000 in fiscal 1998, $2,000,000
in fiscal 1997 and $200,000 in fiscal 1996. The fiscal 1997 expenses and losses
were from the opening of the Company's Las Vegas facilities. The Company
typically incurs
-16-
significant pre-opening expenses in connection with its new restaurants which
are expensed as incurred. Furthermore, it is not uncommon that such restaurants
experience operating losses during the early months of operation.
General and administrative expenses, as a percentage of net sales,
were 5.2% in both fiscal 1998 and fiscal 1997 as compared to 5.8% in fiscal
1996. The decrease in fiscal 1997 was primarily due to the fact that the Company
was able to manage the 35.8% increase in net sales with a lower percentage
increase in general and administrative expenses. If net sales at managed
restaurants were included in consolidated net sales, general and administrative
expenses as a percentage of net sales would have been 4.7% in fiscal 1998, 4.6%
in fiscal 1997 and 5.0% in fiscal 1996.
As of October 3, 1998 the Company managed five restaurants owned by
others (El Rio Grande and Woody's in Manhattan, the Marketplace Cafe, Savannah,
and the Brewskeller Pub in Boston, Massachusetts), and a cafe in a store in New
York City (Warner Bros.). Net sales of these restaurant facilities, which are
not included in consolidated net sales were $12,738,000 in fiscal 1998,
$14,151,000 in fiscal 1997 and $12,802,000 in fiscal 1996.
Interest expense was $608,000 in fiscal 1998, $755,000 in fiscal 1997
and $426,000 in fiscal 1996, net of amounts capitalized. The decrease in fiscal
1998 from fiscal 1997 is principally due to repayments of borrowings incurred
in fiscal 1997. Such borrowings financed the construction costs and working
capital requirements of the Las Vegas restaurant facilities which opened in
January 1997.
Interest income was $210,000 in fiscal 1998, $72,000 in fiscal 1997 and
$87,000 in fiscal 1996. The increase in fiscal 1998. as compared to fiscal 1997
is due to interest earned on notes issued in connection with restaurants sold in
fiscal 1997 and fiscal 1998.
Other income, which generally consists of purchasing service fees, and
the sale of logo merchandise at various restaurants, was $490,000 in fiscal
1998, $780,000 in fiscal 1997 and $1,083,000 in fiscal 1996. A significant
portion of the amounts received in fiscal 1997 and fiscal 1996 was principally
due to amounts the Company received by a third party due to the temporary
closing in fiscal 1994 and fiscal 1995 of a restaurant (Ernie's).
Income Taxes
The provision for income taxes reflects Federal income taxes calculated
on a consolidated basis and state and local income taxes calculated by each New
York subsidiary on a non-consolidated basis. Most of the restaurants owned or
managed by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a
subsidiary may only be used to offset that subsidiary's income with the
exception of the restaurants which operate in the District of Columbia.
Accordingly, the Company's overall effective tax rate has varied depending on
the level of losses incurred at individual subsidiaries. The Company's overall
effective tax rate was 40% in both fiscal 1998 and fiscal 1997 and 37% in fiscal
1996.
The Company's overall effective tax rate in the future will be affected
by factors such as the level of losses incurred at the Company's New York
facilities (which cannot be consolidated for state and local tax purposes),
pre-tax income earned outside of New York City (Nevada has no state income tax
and other states in which the Company operate have income tax rates
substantially lower in comparison to New York) and the utilization of state and
local net operating loss carry forwards. In order to more effectively utilize
tax loss carry forwards at restaurants that were unprofitable, the Company has
merged certain profitable subsidiaries with certain loss subsidiaries.
As a result of the enactment of the Revenue Reconciliation Act of 1993,
the Company is entitled, commencing January 1, 1994, to a tax credit based on
the amount of FICA taxes paid by the Company with respect
-17-
to the tip income of restaurant service personnel. The net benefit to the
Company was $506,000 in fiscal 1998, $373,000 in fiscal 1997 and $349,000 in
fiscal 1996.
The Internal Revenue Service is currently examining the Company's
Federal Income Tax returns for the fiscal years ended September 28, 1991 through
October 1, 1994, and has proposed certain adjustments, all of which are being
contested by the Company. The adjustments primarily relate to (i) pre-opening,
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 of the Internal Revenue Code.
The Company does not believe that any adjustments resulting from such
examination will have a material effect on the Company's financial condition.
Liquidity and Sources of Capital
The Company's primary source of capital is cash provided by operations
and funds available from the revolving credit agreement with its main bank. The
Company utilizes capital primarily to fund the cost of developing and opening
new restaurants and acquiring existing restaurants.
The net cash used in investing activities in fiscal 1998 ($4,179,000),
fiscal 1997 ($10,445,000) and fiscal 1996 ($6,693,000) was principally from the
Company's continued investment in fixed assets associated with constructing new
restaurants and acquiring existing restaurants. In fiscal 1998 the Company
acquired an existing restaurant in Las Vegas (the Stage Deli) and in fiscal 1997
the Company finished and opened the Las Vegas restaurant facilities which had
also been in construction since fiscal 1996.
The net cash used in financing activities in fiscal 1998 ($2,825,000)
was principally due to the repurchase of 159,000 shares of the Company's
outstanding common stock and repayments of debt on the Company's main credit
facility in excess of borrowings on such facility. The net cash provided by
financing activities in fiscal 1997 ($5,643,000) was principally due to proceeds
of a private placement of 551,454 shares of the Company's common stock. In
fiscal 1996 net cash provided by financing activities ($2,321,000) was
principally from the Company's borrowings on its main credit facility exceeding
repayments on such facility.
At October 3, 1998 the Company had a working capital deficit of $719,000
as compared to working capital deficit of $2,374,000 at September 27, 1997. The
working capital deficit at the end of fiscal 1997 was significantly impacted by
cash expended for the construction of the Las Vegas facilities which opened in
January 1997. The restaurant business does not require the maintenance of
significant inventories or receivables, thus the Company is able to operate with
negative working capital.
The Company's Revolving Credit and Term Loan Facility with its main bank
includes a $10,000,000 facility for use in construction of and acquisition of
new restaurants and for working capital purposes at the Company's existing
restaurants. The facility allows the Company to borrow up to $10,000,000 until
April 2000 at which time outstanding loans mature. The loans bear interest at a
rate of prime plus 1/2%. At October 3, 1998 the Company had borrowings of
$2,600,000 outstanding on the facility.
The Company also has a two year $1,000,000 Letter of Credit Facility for
use in lieu of lease security deposits. At October 3, 1998 the Company had
delivered $556,000 in irrevocable letters of credit on this facility.
In December 1996, the Company raised net proceeds of $6,028,000 through
a private placement of 551,454 shares of its common stock at $11 per share. The
proceeds were used to repay a portion of the Company's outstanding borrowings on
its Revolving Credit and Term Loan Facility and for the payment of capital
expenditures on the Las Vegas restaurant facilities.
-18-
The amount of indebtedness that may be incurred by the Company is
limited by the revolving credit agreement with its main bank. Certain provisions
of the agreement may impair the Company's ability to borrow funds.
Restaurant Expansion
The Company recently began construction on a 500 plus seat Southwestern
style restaurant at Union Station in Washington, D.C., where the Company
operates two other restaurants. The Company expects to incur up to $1,800,000 in
capital costs and other pre-opening expenses to open this restaurant. The
Company expects to open this restaurant in the March 1999 fiscal quarter.
The Company expects to shortly begin construction on its previously
announced project at a large theatre development in Southfield, Michigan under a
joint venture agreement with Sony Theatres' Loeks Star Partners and Millennium
Partners. There the Company will develop and operate four restaurants containing
a total of approximately 50,000 square feet. The Company anticipates that its
share of the required capital contributions to meet the construction costs,
initial inventories and pre-opening expenses will be $6,500,000. The project is
currently scheduled to open in the June 1999 fiscal quarter
Although the Company is not currently committed to any other projects,
the Company is exploring additional opportunities for expansion of its business.
The Company expects to fund its projects through cash from operations and
existing credit facilities. Additional expansion may require additional external
financing.
Recent Developments
In the first quarter of fiscal 1999, the Company sold a restaurant
located in New York City (Perretti Italian Cafe) and a restaurant located in
Washington, D.C. (B. Smith's) for an aggregate selling price of $1,225,000 of
which $975,000 was paid in cash and the balance was financed by notes. The
Company expects to record a gain of approximately $600,000 on these sales.
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements:
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," revises employers' disclosures about pension and other
postretirement benefit plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practical, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful as they were under SFAS No. 87,
"Employers' Accounting for Pension," and SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefits Pension Plans and
Termination Benefits." SFAS No. 132 is effective for fiscal years beginning
after December 15, 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that the Company recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designed as a hedge of the exposure to
changes in fair value of a recognized asset or liability or hedge of the
exposure to variable cash flows of a forecasted transaction. The accounting for
changes in fair value of a derivative (e.g., through earnings or outside
earnings, through comprehensive income) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" requires costs of start-up activities
-19-
and organization costs to be expensed as incurred. Currently some companies
capitalize start-up costs whereas others expense start-up as incurred.
Additionally, there is a diverse range of amortization periods among companies
that capitalize start-up costs. The statement is effective for fiscal years
beginning after December 15, 1998. The Company currently expenses all start-up
costs as incurred while organization costs are capitalized and amortized over
five years.
Year 2000
The Company has assessed and continues to assess the impact of the year
2000 issue on its reporting systems and operations. The year 2000 issue exists
because many computer systems and applications currently use two-digit fields
to designate a year. When the century date occurs, date-sensitive systems may
recognize the year 2000 as 1900 or not at all. This inability to recognize or
properly treat the year 2000 may cause systems to process critical financial and
operational information incorrectly. Based on a review of the Company's computer
systems, management does not currently believe the cost of remediation will
exceed $100,000.
The Company has initiated communications with its significant vendors
and service providers to determine the extent to which the Company's systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. At the Company's facilities at the New York-New York Hotel and Casino,
for example, the Company utilizes and interfaces with systems provided by the
Hotel and the failure of the Hotel's computer systems to adequately address the
Year 2000 issue may have a material adverse effect upon the Company. The
Company has been advised by the Hotel that its systems are expected to be Year
2000 compliant.
The Company is dependent upon major credit card issuers for the
remittance to the Company of charges incurred by customers. The Company has been
advised that the major credit card issuers in the United States have addressed
the Year 2000 issues they confront and do expect that their systems will
function properly in the Year 2000.
Other vendors and service providers with which the Company does business
may not have adequately addressed the Year 2000 issue. However, the Company
believes that there are numerous sources for the various products and services
used by the Company and does not anticipate that Year 2000 compliance issues
confronted by its vendors and service providers will have a material adverse
effect upon the Company.
Item 8. Financial Statements and Supplementary Data
See page F-1.
Item 9. Changes in and Disagreements on With Accountants Accounting and
Financial Disclosure
None.
-20-
PART III
Item 10. Directors and Executive Officers of the Registrant
See Part I, Item 4. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than February 1, 1999
pursuant to Regulation 14A of the General Rules and Regulations ("Regulation
14A") under the Securities Exchange Act of 1934, as amended.
Item 11. Executive Compensation
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than
February 1, 1999 pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than
February 1, 1999 pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed not later than
February 1, 1999 pursuant to Regulation 14A.
-21-
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
Page
----
(a) (1) Financial Statements:
Report of Independent Certified
Public Accountants F-1
Consolidated Balance Sheets --
at October 3, 1998 and September 27, 1997 F-2
Consolidated Statements of Operations --
For each of the three fiscal years ended
October 3, 1998, September 27, 1997 and September 28, 1996 F-3
Consolidated Statements of Shareholders' Equity --
For each of the three fiscal years ended
October 3, 1998, September 27, 1997 and September 28, 1996 F-4
Consolidated Statements of Cash Flows --
For each of the three fiscal years ended
October 3, 1998, September 27, 1997 and September 28, 1996 F-5
Notes to Consolidated Financial Statements F-6
(2) Exhibits:
3.1 Certificate of Incorporation of the Registrant, filed on
January 4, 1983, incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed on October 11, 1985, incorporated by
reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed on July 21, 1988, incorporated by
reference to Exhibit 3.3 to the 1994 10-K.
3.4 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.4 to the 1994 10-K.
10.1 Amended and Restated Redemption Agreement dated June 29, 1993
between the Registrant and Michael Weinstein, incorporated by
reference to Exhibit 10.1 to the 1994 10-K.
10.2 Form of Indemnification Agreement entered into between the
Registrant and each of its Directors and Executive Officers
incorporated by reference to Exhibit 10.2 to
the 1994 10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated
by reference to Exhibit 10.3 to the 1994 10-K.
10.4 Second Amended and Restated Credit Agreement dated as of March
5, 1996 between the Company and Bank Leumi Trust Company of
New York, incorporated by reference to Exhibit 10.52 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 1996 (the "March 1996 10-Q").
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, incorporated
by reference to Exhibit 10.53 to the March 1996 10-Q.
*10.6 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas America Corp.(1)
*10.7 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Festival Food Corp.(1)
*10.8 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Steakhouse Corp.(1)
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule pursuant to Article 5 of Regulation
S-X filed with EDGAR Version only.
---------------------------------
*Filed Herewith
(1) Certain information has been omitted and filed separately with
the SEC pursuant to a request for confidential treatment pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
(b) Reports on Form 8-K;
None
-22-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants
Corp. and its subsidiaries as of October 3, 1998 and September 27, 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three fiscal years in the period ended October 3, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ark Restaurants Corp. and
subsidiaries as of October 3, 1998 and September 27, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended October 3, 1998, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
November 20, 1998
F-1
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
October 3, September 27,
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 1,023,046 $ 722,283
Accounts receivable 2,507,307 1,975,434
Current portion of long-term receivables (Note 2) 415,755 277,402
Inventories 1,950,146 2,044,689
Deferred income taxes (Note 12) 908,468 915,534
Prepaid expenses and other current assets 491,129 432,816
----------- -----------
Total current assets 7,295,851 6,368,158
----------- -----------
LONG-TERM RECEIVABLES (Note 2) 1,119,110 971,023
ASSETS HELD FOR SALE (Note 3) 1,767,782 1,892,639
FIXED ASSETS - At cost (Notes 4 and 7):
Leasehold improvements 22,464,922 22,526,150
Furniture, fixtures and equipment 18,591,938 18,387,492
Leasehold improvements in progress 18,906 50,053
----------- -----------
41,075,766 40,963,695
Less accumulated depreciation and amortization 15,833,403 14,037,200
----------- -----------
25,242,363 26,926,495
----------- -----------
INTANGIBLE ASSETS - Net (Note 4) 5,514,932 3,346,176
DEFERRED INCOME TAXES (Note 12) 1,030,908 1,081,006
OTHER ASSETS (Note 5) 1,131,233 682,601
----------- -----------
$43,102,179 $41,268,098
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,563,068 $ 3,560,250
Accrued expenses and other current liabilities (Note 6) 2,907,766 3,098,356
Current maturities of capital lease obligations (Note 8) 229,944 245,412
Current maturities of long-term debt (Note 7) 609,283 1,424,129
Accrued income taxes (Note 12) 705,133 413,870
----------- -----------
Total current liabilities 8,015,194 8,742,017
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES (Note 8) 148,494 406,533
LONG-TERM DEBT - Net of current maturities (Notes 4 and 7) 4,405,351 4,702,668
OPERATING LEASE DEFERRED CREDIT (Note 8) 1,471,000 1,528,000
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
SHAREHOLDERS' EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share - authorized,
10,000,000 shares; issued, 5,187,836 and 5,177,836 shares,
respectively 51,879 51,779
Additional paid-in capital 14,214,898 14,131,383
Retained earnings 17,565,258 12,953,117
----------- -----------
31,832,035 27,136,279
Less treasury stock, 1,504,337 and 1,345,337 shares 2,769,895 1,247,399
----------- -----------
29,062,140 25,888,880
----------- -----------
$43,102,179 $41,268,098
=========== ===========
See notes to consolidated financial statements.
F-2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
---------------------------------------------------
October 3, September 27, September 28,
1998 1997 1996
NET SALES $117,398,453 $104,326,386 $ 76,795,940
COST OF SALES 31,265,702 28,451,887 20,861,465
------------ ------------ ------------
Gross restaurant profit 86,132,751 75,874,499 55,934,475
MANAGEMENT FEE INCOME (Note 11) 1,139,799 1,153,264 1,204,808
------------ ------------ ------------
87,272,550 77,027,763 57,139,283
OPERATING EXPENSES:
Payroll and payroll benefits 41,171,865 38,520,986 27,740,390
Occupancy 13,788,992 13,031,811 9,843,110
Depreciation 3,998,272 3,320,739 2,664,892
Other 14,671,521 13,922,524 11,918,198
------------ ------------ ------------
73,630,650 68,796,060 52,166,590
GENERAL AND ADMINISTRATIVE EXPENSES 6,052,435 5,445,990 4,474,697
------------ ------------ ------------
79,683,085 74,242,050 56,641,287
------------ ------------ ------------
OPERATING INCOME 7,589,465 2,785,713 497,996
------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense (Note 7) 608,278 755,383 425,810
Interest income (209,577) (71,652) (86,708)
Other income (Note 13) (490,118) (780,281) (1,082,717)
------------ ------------ ------------
(91,417) (96,550) (743,615)
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,680,882 2,882,263 1,241,611
PROVISION FOR INCOME TAXES (Note 12) 3,068,741 1,144,608 452,849
------------ ------------ ------------
NET INCOME $ 4,612,141 $ 1,737,655 $ 788,762
============ ============ ============
NET INCOME PER SHARE - BASIC $ 1.21 $ .47 $ .24
============ ============ ============
NET INCOME PER SHARE - DILUTED $ 1.20 $ .46 $ .24
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,826,255 3,714,116 3,238,419
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,852,019 3,742,811 3,272,857
========= ========= =========
See notes to consolidated financial statements.
F-3
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 3, 1998, SEPTEMBER 27, 1997, AND SEPTEMBER 28, 1996
- --------------------------------------------------------------------------------
Common Stock Additional Total
-------------------------- Paid-In Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
BALANCE, SEPTEMBER 30, 1995 4,536,382 $ 45,364 $ 7,481,636 $ 10,426,700 $ (1,247,399) $ 16,706,301
Exercise of stock options 72,500 725 183,650 -- -- 184,375
Tax benefit on exercise of options -- -- 124,956 -- -- 124,956
Net income -- -- -- 788,762 -- 788,762
--------- -------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 28, 1996 4,608,882 46,089 7,790,242 11,215,462 (1,247,399) 17,804,394
Common stock private placement 551,454 5,515 6,023,111 -- -- 6,028,626
Issuance of warrants -- -- 175,000 -- -- 175,000
Exercise of stock options 17,500 175 85,450 -- -- 85,625
Tax benefit on exercise of options -- -- 57,580 -- -- 57,580
Net income -- -- -- 1,737,655 -- 1,737,655
--------- -------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 27, 1997 5,177,836 51,779 14,131,383 12,953,117 (1,247,399) 25,888,880
Exercise of stock options 10,000 100 64,900 -- -- 65,000
Purchase of treasury stock -- -- -- -- (1,522,496) (1,522,496)
Tax benefit on exercise of options -- -- 18,615 -- -- 18,615
Net income -- -- -- 4,612,141 -- 4,612,141
----------- -------- ------------ ------------ ------------ ------------
BALANCE, OCTOBER 3, 1998 $ 5,187,836 $ 51,879 $ 14,214,898 $ 17,565,258 $ (2,769,895) $ 29,062,140
=========== ======== ============ ============ ============ ============
See notes to consolidated financial statements.
F-4
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Year Ended
----------------------------------------------------
October 3, September 27, September 28,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,612,141 $ 1,737,655 $ 788,762
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of fixed assets 3,432,104 3,047,422 2,324,304
Amortization of intangibles 566,168 445,123 492,207
Loss (gain) on sale of restaurants (258,684) (229,000) 297,000
Provision for uncollectible long-term receivables -- -- 96,000
Operating lease deferred credit (57,000) (19,000) 10,000
Deferred income taxes 57,164 (431,966) (692,492)
Changes in assets and liabilities:
Increase in accounts receivable (531,873) (512,935) (184,672)
Increase in inventories (17,020) (890,567) (65,597)
Increase (decrease) in prepaid expenses and other current assets (58,313) 112,961 603,675
(Increase) decrease in other assets, net (543,820) 60,008 (232,205)
Increase in accounts payable - trade 2,818 1,194,311 330,167
Increase in accrued income taxes 291,263 89,476 59,025
Increase (decrease) in accrued expenses and other current liabilities (190,590) 13,672 181,392
------------ ----------- -----------
Net cash provided by operating activities 7,304,358 4,617,160 4,007,566
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (1,713,847) (11,006,116) (6,833,018)
Additions to intangible assets (229,524) (11,639) (110,849)
Issuance of demand notes and long-term receivables (81,580) -- (63,092)
Payments received on demand notes and long-term receivables 315,908 264,370 171,651
Restaurant sales 265,000 308,000 250,000
Restaurant acquisitions (2,735,000) -- (108,000)
------------ ----------- -----------
Net cash used in investing activities (4,179,043) (10,445,385) (6,693,308)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (8,012,164) (10,277,900) (1,857,045)
Issuance of long-term debt 6,900,000 10,000,831 4,100,000
Exercise of stock options 83,615 143,205 309,331
Principal payment on capital lease obligations (273,507) (251,257) (230,825)
Purchase of treasury stock (1,522,496) -- --
Proceeds from common stock private placement -- 6,028,626 --
------------ ----------- -----------
Net cash provided by (used in) financing activities (2,824,552) 5,643,505 2,321,461
------------ ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS 300,763 (184,720) (364,281)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 722,283 907,003 1,271,284
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,023,046 $ 722,283 $ 907,003
============ =========== ===========
SUPPLEMENTAL INFORMATION:
Cash payments for the following were:
Interest $ 608,278 $ 931,383 $ 515,810
============ =========== ===========
Income taxes $ 2,699,651 $ 1,502,643 $ 966,434
============ =========== ===========
See notes to consolidated financial statements.
F-5
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 3, 1998, SEPTEMBER 27, 1997, AND SEPTEMBER 28, 1996
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 21
restaurants, and manage five restaurants, of which 14 are in New York
City, three in Washington, D.C., four in Las Vegas, Nevada (three within
the New York New York Hotel and Casino Resort), three in Boston,
Massachusetts and one each in McLean, Virginia; and Islamorada, Florida.
Along with the three restaurants within the New York New York Hotel &
Casino Resort, the Company also operates the Resort's room service,
banquet facilities, employee dining room and a complex of nine smaller
cafes and food operations.
The Company's other operations include catering businesses in New York
City and Washington, D.C. as well as wholesale and retail bakeries in New
York City and, a cafe at the Warner Bros. store in New York City.
ACCOUNTING PERIOD - The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal year ended October 3, 1998, included 53 weeks and
the fiscal years ended September 27, 1997, and September 28, 1996 included
52 weeks.
SIGNIFICANT ESTIMATES - In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value
of certain assets and liabilities which are not readily apparent from
other sources. The primary estimates underlying the Company's financial
statements include allowances for potential bad debts on accounts and
notes receivable, the useful lives and recoverability of its assets, such
as property and intangibles, fair values of financial instruments, the
realizable value of its tax assets and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the
circumstances, and while actual results could differ from those estimates,
management does not believe that any change in those assumptions in the
near term would have a material effect on the Company's consolidated
financial position or the results of operation.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned and majority
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in affiliated companies
where the Company is able to exercise significant influence over operating
and financial policies even though the Company holds 50% or less of the
voting stock, are accounted for under the equity method.
CASH EQUIVALENTS - Cash equivalents include instruments with original
maturities of three months or less.
ACCOUNTS RECEIVABLE - Included in accounts receivable are amounts due from
employees of $1,069,852 and $719,871 for fiscal years ended October 3,
1998 and September 27, 1997. Such amounts, which are due on demand, are
principally due to various employees exercising stock options in
accordance with the Company's Stock Option Plan (See note 10).
F-6
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.
FIXED ASSETS - Leasehold improvements and furniture, fixtures and
equipment are stated at cost. Depreciation of furniture, fixtures and
equipment (including equipment under capital leases) is computed using the
straight-line method over the estimated useful lives of the respective
assets (7 years). Amortization of improvements to leased properties is
computed using the straight-line method based upon the initial term of the
applicable lease or the estimated useful life of the improvements,
whichever is less, and ranges from 5 to 35 years.
The Company annually assesses any impairments in value of long-lived
assets and certain identifiable intangibles to be held and used. For all
periods presented, no impairments were deemed necessary.
Certain costs incurred during the construction period of restaurants,
including rental of premises, training and payroll, were expensed as
incurred.
INTANGIBLE AND OTHER ASSETS - Costs associated with acquiring leases and
subleases, principally purchased leasehold rights, have been capitalized
and are being amortized on the straight-line method based upon the initial
terms of the applicable lease agreements, which range from 10 to 21 years.
Goodwill recorded in connection with the acquisition of shares of the
Company's common stock from a former shareholder, as discussed in Note 4,
is being amortized over a period of 40 years. Goodwill arising from
restaurant acquisitions is being amortized over periods ranging from 10 to
15 years or lease term, whichever period is shorter.
Legal and other costs incurred to organize restaurant corporations are
capitalized as organization costs and are amortized over a period of 5
years.
Covenants not to compete arising from restaurant acquisitions are
amortized over the contractual period of 5 years.
Certain legal and bank commitment fees incurred in connection with the
Company's Revolving Credit and Term Loan Facility, as discussed in Note 7,
were capitalized as deferred financing fees and are being amortized over
four years, the term of the facility.
The Company periodically assesses the recoverability of intangible assets
on an asset by asset basis using the projected undiscounted operating
income.
OPERATING LEASE DEFERRED CREDIT - Several of the Company's operating
leases contain predetermined increases in the rentals payable during the
term of such leases. For these leases, the aggregate rental expense over
the lease term is recognized on a straight-line basis over the lease term.
The excess of the expense charged to operations in any year and amounts
payable under the leases during that year are recorded as a deferred
credit. The deferred credit subsequently reverses over the lease term
(Note 8).
OCCUPANCY EXPENSES - Occupancy expenses include rent, rent taxes, real
estate taxes, insurance and utility costs.
INCOME PER SHARE OF COMMON STOCK - 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 plus the
additional dilutive effect of common stock equivalents. Common stock
equivalents consist of dilutive stock options.
F-7
STOCK OPTIONS - The Company accounts for its 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 provision of SFAS No.123 had been adopted.
The company generally does not grant options to outsiders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial Accounting
Standard Board has issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income and its components. The Company believes that there are no items
that would require presentation in a separate statement of comprehensive
income. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" established standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. It also established standards for related disclosures
about products and services, geographic areas, and major customers.
Management believes that there are no items that would require segment
presentation. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997.
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial
Accounting Standards Board has recently issued several new accounting
pronouncements. SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," revises employers' disclosures about
pension and other postretirement benefit plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practical, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
as useful as they were under SFAS No 87, "Employers' Accounting for
Pension," and SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and Termination Benefits."
SFAS No. 132 is effective for fiscal years beginning after December 15,
1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that the Company
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designed as a
hedge of the exposure to changes in fair value of a recognized asset or
liability or hedge of the exposure to variable cash flows of a forecasted
transaction. The accounting for changes in fair value of a derivative
(e.g., through earnings or outside earnings, through comprehensive income)
depends on the intended use of the derivative and the resulting
designation. SFAS No 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Statement of Position 98-5, "Reporting on the Costs of Start-Up
activities" requires costs of start-up activities and organization costs
to be expensed as incurred. Currently some companies capitalize start-up
costs whereas others expense start-up costs as incurred. Additionally,
there is a diverse range of amortization periods among companies that
capitalize start-up costs. The Statement is effective for
F-8
fiscal years beginning after December 15, 1998. The Company currently
expenses all start-up costs as incurred while organization costs are
capitalized and amortized over five years.
The effect of the adoption of these Statements on the Company's
consolidated financial statements is not expected to be material.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1997
and 1996 financial statements to conform to the 1998 presentation.
F-9
2. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
October 3, September 27,
1998 1997
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 8% interest; due in
monthly installments through December 2006 (a) $ 564,769 $ 687,497
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments through March 2002 (b) 153,187 190,798
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments through April 2000 (c) 331,700 --
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments commencing May 2000
through December 2008 (c) 207,983 --
Advances for construction and working capital, at one of
the Company's managed locations, at 15% interest; due
in monthly installments through December 2000 164,446 225,983
Advances for construction, at one of the Company's managed
locations, at prime plus 1%; due in monthly installments
through December 1999 33,662 59,632
Note receivable, secured by personal guarantees of officers of a
managed restaurant and fixed assets at that location, at 15%
interest; due in monthly installments, through September 2000 79,118 79,118
Other -- 5,397
---------- ----------
1,534,865 1,248,425
Less current portion 415,755 277,402
---------- ----------
$1,119,110 $ 971,023
========== ==========
(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 1996, the Company sold a restaurant for $258,500. Cash of
$50,000 was received on sale and the balance is due in installments
through March 2002. The Company recognized a gain of $134,000 on this sale
in the fiscal year ended September 27, 1997.
F-10
(c) 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 a rate of 7.5%. One note,
with an initial principal balance of $400,000, is being paid in 24 monthly
installments of $18,569 through April 2000. The second note, with an
initial principal balance of $1,150,000, will be paid in 104 monthly
installments of $14,500 commencing May 2000 and ending December 2008. At
December 2008, the then outstanding balance of $519,260 matures.
The Company recognized a gain on sale of approximately $185,000 in the
fiscal year ended October 3, 1998. Additional deferred gains totaling
$1,024,000 could be recognized in future period as the notes are
collected. The Company deferred recognizing this additional gain and
recorded an allowance for possible uncollectible notes against the second
outstanding note. This uncertainty is based on the significant length of
time of this note (over 10 years) and the substantial balance which
matures in December 2008 ($519,260).
The carrying value of the Company's long-term receivables approximates its
current aggregate fair value.
3. ASSETS HELD FOR SALE
At October 3, 1998 the Company was actively pursuing the sale of three
restaurants and accordingly reclassified the net fixed assets ($1,625,834)
and inventories ($141,948) as assets held for sale.
At September 27, 1997 the Company was actively pursuing the sale of two
restaurants and, accordingly, reclassified the net fixed assets
($1,669,251), net intangible assets ($180,619) and inventories ($42,769)
as assets held for sale. (See Note 2.)
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
October 3, September 27,
1998 1997
Goodwill (a) $6,222,877 $3,802,877
Purchased leasehold rights (b) 652,740 552,740
Noncompete agreements and other (a) 790,000 790,000
Organization costs 678,491 586,954
---------- ----------
8,344,108 5,732,571
Less accumulated amortization 2,829,176 2,386,395
---------- ----------
$5,514,932 $3,346,176
========== ==========
(a) In August 1985, certain subsidiaries of the Company acquired approximately
one-third of the then outstanding shares of common stock (964,599 shares),
from a former officer and director of the Company for a purchase price of
$3,000,000. The consolidated balance sheets reflect the allocation of
$2,946,000 to goodwill.
F-11
At September 28, 1996 the Company was actively pursuing the sale of one of
the two restaurants it acquired in fiscal 1996 and, accordingly,
reclassified net intangible assets of $452,000 to assets held for sale. In
the fiscal year ended September 27, 1997, the Company completed the sale
of such restaurant and also actively pursued the sale of the other
restaurant it had acquired in the fiscal year ended September 28, 1996.
Accordingly, the Company reclassified net intangible assets of $180,619 to
assets held for sale at September 27, 1997 (see Note 3).
During fiscal 1998 the Company acquired a restaurant for $2,735,000 in
cash. The acquisition was accounted for as a purchase transaction with the
purchase price allocated as follows: leasehold improvements $200,000,
furniture, fixtures and equipment $300,000 and goodwill $2,235,000.
(b) Purchased leasehold rights arise from acquiring leases and
subleases of various restaurants.
5. OTHER ASSETS
Other assets consist of the following:
October 3, September 27,
1998 1997
Deposits $ 353,674 $ 408,797
Deferred financing fees 214,192 271,292
Investments in and advances to affiliates (a) 563,367 2,512
---------- ----------
$1,131,233 $ 682,601
========== ==========
(a) The Company, through a wholly owned subsidiary, became a general
partner with a 19% interest in a partnership which acquired on July
1, 1987 an existing Mexican food restaurant, El Rio Grande, in New
York City. Several related parties also participate as limited
partners in the partnership. The Company's equity in earnings of the
limited partnership was $80,000, $40,000, and $48,000, for the years
ended October 3, 1998, and September 27, 1997 and September 28,
1996, respectively.
The Company also manages El Rio Grande through another wholly owned
subsidiary on behalf of the partnership. Management fee income
relating to these services was $421,000, $311,000, and $450,000 for
the years ended October 3, 1998, September 27, 1997, and September
28, 1996, respectively (Note 11).
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
1998 1997
Sales tax payable .............................. $ 928,225 $ 803,805
Accrued wages and payroll related costs ........ 675,520 878,795
Other current liabilities ...................... 1,304,021 1,415,756
----------- ----------
$2,907,766 $3,098,356
========== ==========
F-12
7. LONG-TERM DEBT
Long-term debt consists of the following:
October 3, September 27,
1998 1997
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, payable on April 30, 2000 (a) $2,600,000 $2,750,000
Notes issued in connection with refinancing of restaurant
equipment, at 8.75%, payable in monthly installments through
January 2002 (b) 1,990,827 2,538,581
Note issued in connection with acquisition of restaurant site,
at 7.25%, payable in monthly installments through
January 1, 2000 (c) 423,807 475,554
Note issued in connection with acquisition of restaurant site, at
8.5%, payable in monthly installments through April 2001 (d) -- 362,662
---------- ----------
5,014,634 6,126,797
Less current maturities 609,283 1,424,129
---------- ----------
$4,405,351 $4,702,668
========== ==========
(a) The Company's Revolving Credit and Term Loan Facility with its main bank
(Bank Leumi USA), as amended May 1998, includes a $10,000,000 facility to
finance the development and construction of new restaurants and for
working capital purposes at the Company's existing restaurants.
Outstanding loans bear interest at 1/2% above the bank's prime rate. Any
outstanding loans on April 2000 are due in full. The Facility also
includes a two-year Letter of Credit Facility for use in lieu of lease
security deposits. 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 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.
(b) In January 1997, the Company borrowed from its main bank, $2,851,000 to
refinance the purchase of various restaurant equipment at its food and
beverage facilities in a hotel and casino in Las Vegas, Nevada. The notes
bear interest at 8.75% per annum and are payable in 60 equal monthly
installments of $58,833 inclusive of interest, until maturity in January
2002. The Company granted the bank a security interest in such restaurant
equipment. In connection with such
F-13
financing, the Company granted the bank the right to purchase 35,000
shares of the Company's common stock at the exercise price of $11.625 per
share through December 2001. The fair value of the warrants was estimated
at the date of grant, credited to additional paid-in capital and is being
amortized over the life of the warrant.
(c) In November 1994, the Company issued a $600,000 note in connection with
the acquisition of a restaurant in the Florida Keys. The Company remits
monthly payments of $7,044 inclusive of interest until January 1, 2000, at
which time the outstanding balance of $358,511 is due. The debt is secured
by the leasehold improvements and tangible personal property at the
restaurant.
(d) In April 1996 the Company acquired a restaurant for $550,000, which was
financed by issuing a note payable in monthly installments of $13,461,
inclusive of interest. At September 27, 1997, the Company was actively
pursuing the sale of this restaurant and accordingly has classified the
total balance due of $362,662 as a current liability within the current
maturities of long-term debt balance.
Required principal payments on long-term debt are as follows:
Year Amount
1999 $ 609,283
2000 3,567,899
2001 654,351
2002 183,101
----------
$5,014,634
==========
During the fiscal years ended October 3, 1998, September 27, 1997 and
September 28, 1996, interest expense was $608,278, $931,383 and $515,810,
respectively, of which $176,000 and $90,000 was capitalized during the
fiscal years ended September 27, 1997 and September 28, 1996.
The carrying value of the Company's long-term debt approximates its
current aggregate fair value.
8. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases its restaurants, bar facilities, and
administrative headquarters through its subsidiaries under terms expiring
at various dates through 2029. Most of the leases provide for the payment
of base rents plus real estate taxes, insurance and other expenses and, in
certain instances, for the payment of a percentage of the restaurants'
sales in excess of stipulated amounts at such facility.
F-14
As of October 3, 1998, future minimum lease payments, net of sublease
rentals, under noncancellable leases are as follows:
Operating Capital
Year Leases Leases
1999 $ 6,828,683 $253,720
2000 6,621,874 154,118
2001 6,724,662 -
2002 6,773,420 -
2003 6,750,061 -
Thereafter 31,493,094 -
----------- --------
Total minimum payments $65,191,794 407,838
===========
Less amount representing interest 29,400
--------
Present value of net minimum lease payments $378,438
========
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate
amount of $556,130 as security deposits under such leases.
Rent expense was $9,940,639, $9,102,267 and $6,117,296 during the fiscal
years ended October 3, 1998, September 27, 1997 and September 28, 1996,
respectively. Rent expense for the fiscal years ended October 3, 1998,
September 27, 1997 and September 28, 1996 includes approximately $57,000,
$19,000 and $10,000 operating lease deferred credits, representing the
difference between rent expense recognized on a straight-line basis and
actual amounts currently payable. Contingent rentals, included in rent
expense, were $2,769,721, $2,432,404 and $547,038 for the fiscal years
ended October 3, 1998, September 27, 1997 and September 28, 1996,
respectively.
LEGAL PROCEEDINGS - In the ordinary course of its business, the Company is
a party to various lawsuits arising from accidents at its restaurants and
workmen's compensation claims, which are generally handled by the
Company's insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe
that any of such suits will have a materially adverse effect upon the
Company, its financial condition or operations.
A lawsuit was commenced against the Company in October 1997 in the
District Court for the Southern District of New York by 44 present and
former employees alleging various violations of Federal wage and hour
laws. The complaint seeks an injunction against further violations of the
labor laws and payment of unpaid minimum wages, overtime and other
allegedly required amounts, liquidated damages, penalties and attorneys'
fees. The Company believes that most of the claims asserted in the his
litigation, including those with respect to minimum wages, are
insubstantial. The Company believes that there were certain violations of
overtime requirements, which have today been largely corrected, for which
the Company will have liability. While the Company does not believe that
the liability to any
F-15
single employee for overtime violations will be consequential to it, the
Company's aggregate liability will depend in large part on the number of
persons who "opt in" to the lawsuit asserting similar violations. This
uncertainty prevents the Company from making any reasonable estimate of
its ultimate liability. However, based upon information available to the
Company at this time, including the fact that as of December 15, 1998
less than two percent (2%) of the persons eligible have in fact opted
in, the Company does not believe that the amount of liability which may
be sustained in this action will have a materially adverse effect on its
business financial condition.
A lawsuit was commenced against the Company in April 1997 in the District
Court for Clark County, Nevada by two former employees and one current
employee of the Company's Las Vegas subsidiary alleging that (i) the
Company forced food service personnel at the Company's Las Vegas
facilities to pay a portion of their tips back to the Company in violation
of Nevada law and (ii) the Company failed to timely pay wages to
terminated employees. The action was brought as a class action on behalf
of all similarly situated employees. The Company believes that the first
allegation is without merit and that the Company will have no liability.
The Company also believes that its liability, if any, from an adverse
result in connection with the second allegation would be inconsequential.
The Company intends to vigorously defend against these claims.
In addition, several unfair labor practice charges have been filed against
the Company before the National Labor Relations Board with respect to the
Company's Las Vegas subsidiary. One consolidated complaint alleged that
the Company unlawfully terminated seven employees and disciplined seven
other employees allegedly in retaliation for their union activities. An
Administrative Law Judge (ALJ) found that five employees were terminated
unlawfully and two were discharged for valid reasons. As far as the
discipline, the Judge found that the Company acted legally in
disciplining four employees but not lawfully with respect to three
employees. The Company has appealed the adverse rulings of the ALJ to the
National Labor Relations Board in Washington, D.C. The Company believes
that there are reasonable grounds for obtaining a reversal of the
unfavorable findings by the ALJ. Another consolidated complaint issued
recently alleges that four employees were terminated and three other
employees disciplined because of their union activities. A hearing is
scheduled on these new charges in January 1999. The Company believes
that these affected employees were terminated or disciplined for
appropriate reasons such as violating reasonable work rules.
The Company does not believe that an adverse outcome in any of the
unfair labor practice charges will have a material adverse effect upon
the Company's financial condition or operations. The Company believes that
these unfair labor practice charges and the litigation pending in Nevada
described above are part of an ongoing campaign by the Culinary Workers
Union which is seeking to represent employees at the Company's Las Vegas
restaurants. However, rather than pursue the normal election process
pursuant to which employees are given the freedom to choose whether they
should be represented by a union, a process which the Company supports,
the Company believes the union is seeking to achieve recognition as the
bargaining agent for such employees through a campaign directed not at
the Company's employees but at the Company itself and its stockholders.
The Company intends to continue to support the right of its employees to
decide such matters and to oppose the efforts of the Culinary Workers
Union to circumvent that process.
An action was commenced in May 1998 in Superior Court of the District of
Columbia against the Company and its Washington, D.C. subsidiaries by
seven present and former employees of the restaurants owned by such
subsidiaries alleging violations of the District of Columbia Wage & Hours
Act relating to minimum wages and overtime compensation. While the action
is in its early stages, the Company does not believe that its liability,
if any, from an adverse result in this matter would have a material
adverse effect upon its business or financial condition.
A lawsuit was commenced against the Company in October 1998 in Superior
Court of Los Angeles County, California by a former employee alleging
that her employment was terminated on the basis of her age in violation
of the California Fair Employment and Housing Act. The Company believes
that the allegations are without merit.
F-16
9. SHAREHOLDERS' EQUITY
COMMON STOCK PRIVATE PLACEMENT - In December 1996, the Company raised net
proceeds of $6,028,626 in a private placement of 551,454 shares of its
common stock at $11 per share. The proceeds of such offering were used to
repay a portion of the Company's outstanding bank borrowings and for the
payment of capital expenditures on its Las Vegas restaurant facilities at
the New York New York Hotel & Casino in Las Vegas which opened in January
1997.
COMMON STOCK REPURCHASE PLAN - In August 1998 the Company authorized the
repurchase of up to 500,000 shares of the Company outstanding common
stock. As of October 3, 1998, the company had repurchased 159,000 shares
at a total cost of $1,522,496.
10. STOCK OPTIONS
On October 15, 1985, the Company adopted a Stock Option Plan (the "Plan")
pursuant to which the Company reserved for issuance an aggregate of
175,000 shares of common stock. In May 1991 and March 1994, the Company
amended such Plan to increase the number of shares issuable under the Plan
to 350,000 and 447,650, respectively. In March 1996, the Company adopted a
second plan and reserved for issuance an additional 135,000 shares. In
March 1997, the Company amended this plan to increase the number of shares
included under the plan to 270,000. Options granted under the Plans to key
employees and directors are exercisable at prices at least equal to the
fair market value of such stock on the dates the options were granted. The
options expire five years after the date of grant and are generally
exercisable as to 25% of the shares commencing on the first anniversary of
the date of grant and as to an additional 25% commencing on each of the
second, third and fourth anniversaries of the date of grant.
Additional information follows:
1998 1997 1996
--------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding, beginning of year 227,500 $ 10.38 105,625 $ 7.18 189,125 $ 5.45
Options:
Granted 100,000 11.38 150,000 11.71 --
Exercised (10,000) 6.50 (17,500) 4.89 (72,500) 2.54
Canceled or expired (6,000) 8.63 (10,625) 6.37 (11,000) 8.00
------- ------- -------
Outstanding, end of year (a) 311,500 10.86 227,500 10.38 105,625 7.18
------- ------- -------
Price Range, Outstanding Shares $8.00 - $12.00 $6.50 - $12.00 $4.38 - $8.00
-------------- -------------- -------------
Weighted Average Years 3.2 Years 3,53 Years 2.67 Years
--------- ---------- ----------
Shares available for future grant 20,000 120,000 135,000
------ ------- -------
Options exercisable (a) 117,583 10.13 47,500 7.65 43,125 6.34
------- ------- -------
F-17
(a) Options become exercisable at various times until expiration dates
ranging from August 1999 through March 2003.
Statement of Financial Accountings Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123") requires the Company to
disclose pro forma net income and pro forma earnings per share information
for employee stock option grants made in the fiscal years ended October 3,
1998, and September 27, 1997 as if the fair-value method defined in SFAS
No. 123 had been applied. The fair value of each stock-option grant is
estimated on the date of grant using the Black-Scholes option pricing. The
assumptions for fiscal 1998 include; risk free interest rate of 5.5%; no
dividend yield; expected life of 4 years; and expected volatility of 75%.
The assumptions for fiscal 1997 include; risk-free interest rate of 6.5%;
no dividend yield; expected life of 4 years and expected volatility of
38%.
The pro forma impact was as follows:
Year Ended
-------------------------------
October 3, September 27,
1998 1997
Net earnings as reported $ 4,612,141 $ 1,737,655
Net earnings - pro forma 4,464,576 1,694,991
Earnings per share as reported - basic $ 1.21 $ .47
Earnings per share as reported - diluted 1.20 .46
Earnings per share pro forma - basic 1.17 .46
Earnings per share pro forma - diluted 1.16 .45
No options were granted during fiscal 1996 and therefore no pro forma is
required.
The exercise of nonqualified stock options in the fiscal years ended
October 3, 1998, September 27, 1997 and September 28, 1996 resulted in
income tax benefits of $18,615, $57,580 and $124,956, respectively, which
were credited to additional paid-in capital. The income tax benefits
result from the difference between the market price on the exercise date
and the option price.
11. MANAGEMENT FEE INCOME
As of October 3, 1998, the Company provides management services to five
restaurants owned by outside parties. In accordance with the contractual
arrangements, the Company earns fixed fees and management fees based on
restaurant sales and operating profits as defined by the various
management agreements.
Restaurants managed had net sales of $12,738,639, $14,151,888 and
$12,802,305 during the management periods within the years ended October
3, 1998, September 27, 1997 and September 28, 1996, 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
F-18
State and City income tax purposes, the losses incurred by a subsidiary
may only be used to offset that subsidiary's income.
The provision for income taxes consists of the following:
Year Ended
--------------------------------------------------
October 3, September 27, September 28,
1998 1997 1996
Current provision:
Federal $1,892,997 $ 668,391 $ 519,771
State and local 1,117,363 908,183 625,570
---------- --------- ---------
3,010,360 1,576,574 1,145,341
---------- --------- ---------
Deferred provision (credit):
Federal 100,486 (329,602) (592,721)
State and local (42,105) (102,364) (99,771)
---------- --------- ---------
58,381 (431,966) (692,492)
---------- --------- ---------
$3,068,741 $1,144,608 $ 452,849
========== ========== =========
The provision for income taxes differs from the amount computed by
applying the Federal statutory rate due to the following:
Year Ended
---------------------------------------------------------
October 3, September 27, September 28,
1998 1997 1996
Provision for Federal income taxes (34%) $ 2,612,000 $ 980,000 $ 426,000
State and local income taxes net of Federal
tax benefit 710,000 532,000 347,000
Amortization of goodwill 26,000 26,000 26,000
Tax credits (506,000) (373,000) (349,000)
Other 226,741 (20,392) 2,849
----------- ----------- ---------
$ 3,068,741 $ 1,144,608 $ 452,849
=========== =========== =========
F-19
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 3, September 27,
1998 1997
Deferred tax assets:
Operating loss carryforwards $ 839,253 $ 858,937
Operating lease deferred credits 634,516 657,958
Carryforward tax credits 1,086,025 1,157,368
Depreciation and amortization 22,104 11,045
Valuation allowance (642,522) (688,768)
----------- -----------
$ 1,939,376 $ 1,996,540
=========== ===========
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 $642,522 at October 3, 1998 and $688,768 at
September 27, 1997. The Company has state operating loss carryforwards of
$11,094,610 and local operating loss carryforwards of $8,083,505 which
expire in the years 2002 through 2012.
The Internal Revenue Service is currently examining the Company's federal
income tax returns for fiscal years ended September 28, 1991 through
October 1, 1994, and the Internal Revenue Service has proposed certain
adjustments, all of which are being contested by the Company. The
adjustments primarily relate to (i) pre-opening, 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 of the Internal Revenue Code. The
Company does not believe that any adjustments resulting from this
examination will have a material effect on the Company's financial
condition.
F-20
13. OTHER INCOME
Other income consists of the following:
Year Ended
------------------------------------------------------
October 3, September 27, September 28,
1998 1997 1996
Purchasing service fees $ 124,455 $ 86,073 $ 55,551
Insurance proceeds (a) - 377,427 726,415
Sales of logo T-shirts and hats 160,596 171,259 214,291
Other 205,067 145,522 86,460
--------- --------- -----------
$ 490,118 $ 780,281 $ 1,082,717
========= ========= ===========
(a) In July 1994, the Company was required to close a restaurant in
Manhattan (Ernie's) on a temporary basis to enable structural
repairs to be made to the ceiling of the restaurant. The cost of
such repairs, other ongoing restaurant operating expenses and a
guaranteed profit were borne by a third party. The restaurant
reopened in February 1995 and the agreement provided that the third
party continue to guarantee some level of operating profits through
January 1998. During the fiscal years ended September 27, 1997, the
Company received $377,427 and $726,415, respectively, in excess of
the continuing restaurant operating expenses.
14. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, The Financial
Accounting Standards Board Statement No. 128, "Earnings per Share," which
established new standards for computing and presenting earnings per share.
The Company now discloses "Basic Earnings per Share," which is based upon
the weighted average number of shares of common stock outstanding during
each period and "Diluted Earnings per Share," which requires the Company
to include common stock equivalents consisting of dilutive stock options
and warrants. The Company also applied the new standard to the periods
ended September 27, 1997 and September 28, 1996.
F-21
A reconciliation of the numerators and denominators of the basic and
diluted per share computations follow.
Income Shares Per-Share
(Numerator) (Denominator) Amount
Year ended October 3, 1998:
Basic EPS $ 4,612,141 3,826,255 $ 1.21
Stock options and warrants - 25,764 0.01
------------ --------- ------
Diluted EPS 4,612,141 3,852,019 1.20
Year ended September 27, 1997:
Basic EPS 1,737,655 3,714,116 0.47
Stock options and warrants - 28,695 0.01
------------ --------- ------
Diluted EPS 1,737,655 3,742,811 0.46
Year ended September 28, 1996:
Basic EPS 788,762 3,238,419 0.24
Stock options and warrants - 34,438 -
------------ --------- ------
Diluted EPS 788,762 3,272,857 0.24
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
Fiscal Quarter Ended
-----------------------------------------------------------------------------
December 27, March 28, June 27 October 3
1997 1998 1998 1998
1998
Net sales $26,940,384 $25,198,012 $33,029,512 $32,230,545
Gross restaurant profit 19,692,165 18,345,554 24,432,866 23,662,166
Net income (loss) 727,441 (254,154) 2,428,676 1,710,178
Net income (loss) per share -
basic and diluted $ 0.19 $ (0.07) $ 0.63 $ 0.45
Fiscal Quarter Ended
-----------------------------------------------------------------------------
December 28, March 29, June 28 September 27,
1996 1997 1997 1997
1997
Net sales $18,166,656 $24,887,795 $31,469,304 $29,802,631
Gross restaurant profit 13,068,926 17,775,683 22,922,594 22,107,296
Net income (loss) (552,503) (1,108,203) 1,947,476 1,450,885
Net income (loss) per share
basic and diluted $ (0.16) $ (0.29) $ 0.51 $ 0.38
F-22
16. SUBSEQUENT EVENTS (UNAUDITED)
RESTAURANT SALES - In the first quarter of fiscal 1999, the Company sold a
restaurant located in New York City and a restaurant located in
Washington, D.C. for an aggregate selling price of $1,225,000, of which
$975,000 was received in cash and $250,000 was financed by notes. The
notes are due in monthly installments of $5,537, inclusive of interest at
10%, from May 1999 through April 2004. The Company expects to recognize
gains of approximately $600,000 on these sales.
******
F-23
EXHIBIT INDEX
Exh. No. Description
-------- ------------
3.1 Certificate of Incorporation of the Registrant, filed on
January 4, 1983, incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed on October 11, 1985, incorporated by
reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed on July 21, 1988, incorporated by
reference to Exhibit 3.3 to the 1994 10-K.
3.4 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.4 to the 1994 10-K.
10.1 Amended and Restated Redemption Agreement dated June 29, 1993
between the Registrant and Michael Weinstein, incorporated by
reference to Exhibit 10.1 to the 1994 10-K.
10.2 Form of Indemnification Agreement entered into between the
Registrant and each of its Directors and Executive Officers
incorporated by reference to Exhibit 10.2 to
the 1994 10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated
by reference to Exhibit 10.3 to the 1994 10-K.
10.4 Second Amended and Restated Credit Agreement dated as of March
5, 1996 between the Company and Bank Leumi Trust Company of
New York, incorporated by reference to Exhibit 10.52 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 1996 (the "March 1996 10-Q").
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, incorporated
by reference to Exhibit 10.53 to the March 1996 10-Q.
*10.6 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas America Corp.(1)
*10.7 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Festival Food Corp.(1)
*10.8 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Steakhouse Corp.(1)
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule pursuant to Article 5 of Regulation
S-X filed with EDGAR Version only.
---------------------------------
*Filed Herewith
(1) Certain information has been omitted and filed separately with
the SEC pursuant to a request for confidential treatment pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 15 day of December, 1998.
ARK RESTAURANTS CORP.
By: /s/Michael Weinstein
----------------------------
MICHAEL WEINSTEIN, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been duly signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Ernest Bogen Chairman of the Board December 15, 1998
- ----------------
(Ernest Bogen)
/s/ Michael Weinstein President and Director December 15, 1998
- ---------------------
(Michael Weinstein)
/s/ Vincent Pascal Vice President, December 15, 1998
- ------------------
(Vincent Pascal) Secretary and Director
/s/ Robert Towers Vice President, Treasurer, December 15, 1998
- -----------------
(Robert Towers) Principal Financial Officer
and Director
/s/ Andrew Kuruc Vice President, Controller, December 15, 1998
- ----------------
(Andrew Kuruc) Principal Accounting Officer
and Director
/s/ Donald D. Shack Director December 15, 1998
- -------------------
(Donald D. Shack)
/s/ Jay Galin Director December 15, 1998
- -------------
(Jay Galin)
/s/ Paul Gordon Director December 15, 1998
- ---------------
(Paul Gordon)