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