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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-14030
ARK RESTAURANTS CORP.
(Exact name of registrant as specified in its charter)
New York 13-3156768
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 Fifth Avenue, New York, New York 10003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (212) 206-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding shares at February 9, 1998
(Common stock, $.01 par value) 3,842,499
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
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INDEX
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PART I - FINANCIAL INFORMATION: PAGE
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Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - December 27, 1997
(Unaudited) and September 27, 1997 (Unaudited)............................... 1
Consolidated Condensed Statements of Operations and Retained Earnings -
13-Week Periods Ended December 27, 1997 (Unaudited) and December 28, 1996
(Unaudited). ................................................................ 2
Consolidated Condensed Statements of Cash Flows - 13-Week Periods
Ended December 27, 1997 (Unaudited) and December 28, 1996 (Unaudited)........ 3
Notes to Consolidated Condensed Financial Statements (Unaudited).............. 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 7-10
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings....................................................... 11
Item 6. Exhibits and Reports on Form 8-K....................................... 11
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(Dollars in Thousands)
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<TABLE>
<CAPTION>
December 27, September 27,
1997 1997
----------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 495 $ 722
Accounts receivable .................................. 2,684 1,975
Inventories .......................................... 2,077 2,045
Current portion of long-term receivables ............. 316 278
Prepaid expenses and other current assets ............ 534 433
Deferred income taxes ................................ 915 915
------- -------
Total current assets .............................. 7,021 6,368
LONG-TERM RECEIVABLES .................................. 1,337 971
ASSETS HELD FOR SALE ................................... 1,290 1,893
FIXED ASSETS - At Cost:
Leasehold improvements ............................... 22,526 22,526
Furniture, fixtures and equipment .................... 18,404 18,387
Leasehold improvements in progress ..................... 46 50
------- -------
40,976 40,963
Less accumulated depreciation and
amortization ........................................ 14,838 14,037
------- -------
26,138 26,926
INTANGIBLE ASSETS - Less accumulated
amortization of $2,473 and $2,386 .................... 3,260 3,346
OTHER ASSETS ........................................... 606 1,081
DEFERRED INCOME TAXES .................................. 1,081 683
------- -------
TOTAL ASSETS ........................................... $40,733 $41,268
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ............................. $ 3,303 $ 3,560
Accrued expenses and other current
liabilities ......................................... 2,968 3,099
Current maturities of long-term debt ................. 1,136 1,424
Current maturities of capital lease obligations ...... 251 245
Accrued income taxes ................................. 283 414
------- -------
Total current liabilities ........................ 7,941 8,742
LONG-TERM DEBT - net of current maturities ............. 4,248 4,703
OBLIGATIONS UNDER CAPITAL LEASES - net of current
maturities ............................................ 335 406
OPERATING LEASE DEFERRED CREDIT ........................ 1,528 1,528
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000,000 shares;
issued, 5,187,836 and 5,177,836 shares .............. 52 52
Additional paid-in capital ........................... 14,196 14,131
Retained earnings .................................... 13,680 12,953
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27,928 27,136
Less treasury stock, 1,345,337 shares ................ 1,247 1,247
------- -------
Total shareholders' equity ....................... 26,681 25,889
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $40,733 $41,268
======= =======
</TABLE>
See notes to consolidated condensed
financial statements
1
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS & RETAINED EARNINGS (Unaudited)
(In Thousands, Except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended
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December 27, December 28,
1997 1996
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<S> <C> <C>
NET SALES $26,940 $18,167
COST OF SALES 7,248 5,098
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GROSS RESTAURANT PROFIT 19,692 13,069
MANAGEMENT FEE INCOME 197 198
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19,889 13,267
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OPERATING EXPENSES
Payroll and payroll benefits 9,756 7,358
Occupancy 3,176 2,432
Depreciation and amortization 946 588
Other 3,490 2,550
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17,368 12,928
GENERAL AND ADMINISTRATIVE EXPENSES 1,392 1,422
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18,760 14,350
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OPERATING INCOME (LOSS) 1,129 (1,083)
------- -------
OTHER EXPENSE (INCOME):
Interest expense, net 85 19
Other income (167) (181)
------- -------
(82) (162)
------- -------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 1,211 (921)
PROVISION (BENEFIT) FOR INCOME TAXES 484 (368)
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NET INCOME (LOSS) $ 727 $ (553)
======= =======
RETAINED EARNINGS, Beginning of period 12,953 11,216
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RETAINED EARNINGS, End of period $13,680 $10,663
======= =======
NET INCOME (LOSS) PER SHARE- BASIC & DILUTED $.19 ($.16)
==== ====
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,835 3,370
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,859 3,370
======= =======
</TABLE>
See notes to consolidated condensed
financial statements
2
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
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December 27, December 28,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 727 $ (552)
Adjustments to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization of fixed assets 849 549
Amortization of intangibles 99 102
Gain on sale of restaurants (185) (188)
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable (709) (206)
Decrease (Increase) in inventories (32) (591)
Decrease (Increase) in prepaid expenses & other
current assets (101) (41)
Decrease (Increase) in prepaid income taxes - (662)
Decrease (Increase) in other assets 77 41
Increase (Decrease) in accounts payable - trade (257) 61
Increase (Decrease) in accrued expenses and other
current liabilities (131) 2,030
Increase (Decrease) in accrued income taxes (131) (324)
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Net cash provided by or used in operating
activities 206 219
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (12) (7,251)
Payments received on long-term receivables 122 21
Restaurant sales 200 267
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Net cash used in investing activities 310 (6,963)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 250 4,300
Principal payment on long-term debt (993) (3,075)
Proceeds from common stock private placement, net - 6,043
Principal payment on capital lease obligations (65) (61)
Exercise of stock options 65 -
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Net cash provided or used in financing activities (743) 7,207
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (227) 463
CASH AND CASH EQUIVALENTS, beginning of period 722 907
-------- -------
CASH AND CASH EQUIVALENTS, end of period $ 495 $ 1,370
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 141 $ 210
======== =======
Income taxes $ 614 $ 662
======== =======
</TABLE>
See notes to consolidated condensed financial statements.
3
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements have been prepared by Ark
Restaurants Corp. (the "Company"), without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at December 27, 1997 and results of
operations and changes in cash flows for the periods ended December 27, 1997 and
December 28, 1996 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended September 27, 1997. The results of operations for the period ended
December 27, 1997 is not necessarily indicative of the operating results for the
full year.
Certain reclassifications have been made to the fiscal 1997 financial
statements to conform to the fiscal 1998 presentation.
2. RESTAURANT SALES
In the first quarter of fiscal 1998 the Company sold a restaurant located in
the borough of Manhattan 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, the
remaining outstanding balance of $519,260 matures. The Company recognized on
this sale a gain of approximately $185,000 in the first quarter of fiscal 1998.
Additional deferred gains totaling 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 the uncertainty as the ultimate collectibility
of the outstanding notes.
4
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3. CONTINGENCIES
In a lawsuit commenced against the Company and 14 subsidiaries in October
1997, 45 present and former employees of the Company's restaurants allege
various violations of federal and state labor laws. The number of plaintiffs may
increase to include other current and former employees of the restaurants who
are not now named but who "opt-in" to the lawsuit asserting similar violations.
The complaint seeks an injunction against further violations of the labor laws
and payment of unpaid minimum wages, overtime and other allegedly required
amounts, liquidated damages, penalties and attorneys fees.
The action is in its early stages. The Company believes that there were
certain violations of various labor laws, which have today been largely
corrected, for which the Company will have liability. Such liability will depend
in large part on the number of persons who "opt-in" and the extent to which the
Company failed to pay required overtime compensation, the other violations being
deemed by the Company to be insubstantial. The uncertainties involved prevent
the Company from making any reasonable estimate of its ultimate liability.
However, based upon information available to the Company at this time, the
Company does not believe that the amount of liability which may be sustained
in this action will have a materially adverse affect on the Company's business,
operations or financial condition.
4. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, The Financial
Accounting Standards Board Statement No. 128 "Earnings per Share" which
established new standards for computing and presenting earnings per share. The
Company now discloses "Basic Earnings per Share", which is based upon the
weighted average number of shares of common stock outstanding during each period
and "Diluted Earnings per Share" which requires the Company to include common
stock equivalents consisting of dilutive stock options. For the periods ended
December 27, 1997 and December 28, 1996, Basic Earnings per share and Fully
Diluted Earnings per Share were the same. The Company also applied the new
standard to the period ended December 28, 1996 and there was no change in the
previously reported earnings per share for such period.
A reconciliation of the numerators and denominators of the basic and diluted per
share computations follow:
5
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13 Weeks Ended December 27, 1997:
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
BASIC EPS $727,000 3,835,000 $.19
Stock Options -- 24,000 --
Warrants -- -- --
DILUTED EPS $727,000 3,859,000 $.19
Options to purchase 132,500 shares of common stock at $12 per share and
warrants to purchase 35,000 shares of common stock at $11.625 were not included
in the computation of diluted earnings per share at December 27, 1997 because
the exercise prices were greater than the average market price of the common
shares.
At December 28, 1996 options to purchase 105,625 shares of common stock at
a price range of $4.375 to $8 are not included in diluted earnings per share for
the Company had a loss for the quarter. Accordingly stock options were
antidilutive for such period.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements.
NET SALES
Net sales at restaurants and bars owned by the Company increased 48.3% in
the 13-week period ended December 27, 1997 from the comparable period ended
December 28, 1996. The increase for the 13-week period ended December 27, 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);
and 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 the 13-week
period ended December 27, 1997 increased by 4.0% principally due to increased
customer counts.
COSTS AND EXPENSES
The Company's cost of sales consists only of food and beverage costs at
restaurants and bars owned by the Company. For the 13-week period ended December
27, 1997 cost of sales as a percentage of net sales decreased to 26.9% from
28.1% for the comparable period last year. This decrease was principally
achieved at the Company's non Las Vegas facilities.
Operating expenses of the Company, consisting of restaurant payroll,
occupancy and other expenses at restaurants and bars owned by the Company, as a
percentage of net sales, decreased to 64.5% for the 13-week period ended
December 27, 1997 from 71.2% last year. The 13-week period ended December 28,
1996 was impacted by approximately $1,100,000 (or 6.1% of net sales) in
pre-opening operating expenses, of which a significant portion was payroll at
the Company's Las Vegas facilities. Payroll expenses for the 13-week period
ended December 27, 1997 decreased to 36.2% of net sales as compared to 40.5%
last year.
7
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General and administrative expenses, as a percentage of net sales, were
5.2% for the 13-week period ended December 27, 1997 as compared to 7.8% last
year. The 13-week period ended December 28, 1996 was impacted by significant
increases in corporate payroll, travel and other expenses incurred in connection
with the Company's Las Vegas facilities which opened in January 1997. If net
sales at managed restaurants and bars were included in consolidated net sales,
general and administrative expenses as a percentage of net sales would have been
4.6% for the 13-week period ended December 27, 1997 as compared to 6.6% last
year.
The Company had net income of $727,000 for the 13-week period ended
December 27, 1997 compared to a net loss of $553,000 last year. The results for
the 13-week period ended December 28, 1996 were impacted by approximately
$1,300,000 ($780,000 after tax) in pre-opening expenses at the Company's Las
Vegas restaurant facilities.
During the 13-week period ended December 27, 1997 the Company managed six
restaurants and two corporate dining facilities owned by third parties. Net
sales of the managed locations were $3,466,000 during the 13-week period ended
December 27, 1997 as compared to $3,271,000 last year. Net sales of these
operations are not included in consolidated net sales.
INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each
subsidiary on a non consolidated basis. Most of the restaurants owned or managed
by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a
subsidiary may only be used to offset that subsidiary's income, with the
exception of the restaurants which operate in the District of Columbia.
Accordingly, the Company's overall effective income tax rate has varied
depending on the level of the losses incurred at individual subsidiaries.
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
8
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effectively utilize tax loss carry forwards at restaurants that were
unprofitable, the Company has merged certain profitable subsidiaries with
certain loss subsidiaries.
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 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 December 27, 1997 the Company had
$2,350,000 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 with
$1,000,000 due on maturity. The Company may not borrow any further amounts on
the Las Vegas Facility. At December 27, 1997, the Company had $150,000
outstanding 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. The Company and its main
bank have reached an agreement in principle to extend the Revolving Credit and
and Term Loan Facility for one year and to increase the Company's borrowing
capacity to $10,000,000. Loans under the new facility are expected to bear
interest at a rate of prime plus 1/2% per annum. The Company anticipates such
agreement will be finalized in the March 1998 fiscal quarter.
The Company also has a four year $1,300,000 Letter of Credit Facility for use
in lieu of lease security deposits. At December 27, 1997 the Company had
delivered $679,000 in irrevocable letters of credit on this facility.
At December 27, 1997, the Company had a working capital deficit of $920,000
as compared to a working capital deficit of $2,374,000 at September 27, 1997.
The restaurant business does not require the maintenance of significant
inventories or receivables, thus the Company is able to operate with minimal and
even negative working capital.
The 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.
9
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RESTAURANT EXPANSION
The Company is currently constructing in the South Street Seaport in downtown
New York City a 200 seat Southwestern style bar and restaurant. The site was
formerly occupied by a restaurant and the Company is receiving a $500,000
landlord construction allowance. As a result, the Company does not anticipate
significant capital expenditures in connection with the opening of this
restaurant. The Company expects to open this restaurant in the June 1998
fiscal quarter.
The Company recently entered into an agreement, subject to receipt of a state
liquor license, to purchase an existing restaurant located in the Forum Shops at
Caesar's Shopping Center in Las Vegas (the Stage Deli of Las Vegas) for
$2,735,000. The restaurant which has seating for 200 is operated under a license
agreement with the owner of the New York City restaurant of that name.
The Company recently announced that it had reached an agreement in
principle to enter into a joint venture agreement with Sony Theatres' Loeks Star
Partners and Millennium Partners to develop and operate four restaurants
containing a total of approximately 50,000 square feet at a large theatre
development in Southfield, Michigan. The Company anticipates that its share of
the required capital contributions to meet the construction costs, initial
inventories and pre-opening expenses will be $6,000,000. Two of the restaurants
are scheduled to open in the September fiscal quarter with the other two to
follow in the next fiscal year.
Although the Company is not currently committed to any other projects, the
Company is exploring additional opportunities for expansion of its business. The
Company expects to fund its existing projects through cash from operations and
from the anticipated revision of the existing credit facilities. Additional
expansion may require additional external financing.
10
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
See Note 3 of Notes to Consolidated Condensed Financial Statements
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 - Financial Data Schedule -- none
(b) Reports on Form 8-K - none
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 9, 1998
ARK RESTAURANTS CORP.
By /s/ Michael Weinstein
--------------------------------
Michael Weinstein, President
By /s/ Andrew B. Kuruc
----------------------------------
Andrew B. Kuruc
Vice President, Controller and
Principal Accounting Officer
12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statment for the 13 weeks of Ark Restaurants Corp. and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> DEC-27-1997
<CASH> 495
<SECURITIES> 0
<RECEIVABLES> 2,684
<ALLOWANCES> 0
<INVENTORY> 2,077
<CURRENT-ASSETS> 7,021
<PP&E> 40,976
<DEPRECIATION> 14,838
<TOTAL-ASSETS> 40,733
<CURRENT-LIABILITIES> 7,941
<BONDS> 5,970
<COMMON> 52
0
0
<OTHER-SE> 26,629
<TOTAL-LIABILITY-AND-EQUITY> 40,733
<SALES> 26,940
<TOTAL-REVENUES> 26,940
<CGS> 7,248
<TOTAL-COSTS> 7,248
<OTHER-EXPENSES> 18,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 1,211
<INCOME-TAX> 484
<INCOME-CONTINUING> 727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 727
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
