<PAGE>
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 30, 2000
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)
<TABLE>
<S> <C>
New York 13-3156768
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
</TABLE>
85 Fifth Avenue, New York, NY. 10003
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(Address of Principal Executive Office) (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
--- ---
<PAGE>
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. [ ].
The aggregate market value at December 26, 2000 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 $11,356,550. 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 26,
2000, there were outstanding 3,181,699 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 29, 2001 pursuant
to Regulation 14A are incorporated by reference in Items 10 through 13 of Part
III of this Annual Report on Form 10-K.
-2-
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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 24 restaurants and
manages four restaurants owned by others. Twelve of the restaurants owned or
managed by the Company are located in New York City, four are located in
Washington, D.C., seven are located in Las Vegas, Nevada, three are located in
Boston, Massachusetts, and one is located in each of McLean, Virginia and
Islamorada, Florida. At the New York-New York Hotel & Casino, the Company also
operates the room service, banquet facilities and employee dining room and a
complex of nine smaller eateries. The Company also owns and operates four food
court facilities at the Venetian Casino Resort and six food court facilities at
the Aladdin Resort and Casino, both of which are located in Las Vegas. The
Company's other operations include a bar at the Venetian Casino Resort and
catering businesses in New York City and Washington, D.C., as well as wholesale
and retail bakeries in New York City.
The Company was formed in 1983 to concentrate the ownership of four
restaurants previously operated by the Company's principals. Until 1987 all of
the Company's facilities were located in the New York City metropolitan area. In
1987, three facilities were opened in Boston, Massachusetts. Since then the
Company has opened five facilities in the Washington, D.C. metropolitan area
(one of which has been sold), one in Islamorada, Florida and one in Jersey City,
New Jersey (a management agreement that was terminated in fiscal 1998). In
January 1997, the Company opened a group of restaurants in the 2,100-room hotel
known as New York-New York Hotel & Casino in Las Vegas, Nevada. Since that time,
the Company has significantly expanded its Las Vegas operations.
In addition to the shift from a Manhattan-based operation to a
multi-city 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 the restaurant operations at the New York-New York Hotel & Casino
in Las Vegas, Nevada in fiscal 1997, opened two such destination restaurants in
fiscal 1998 (the Stage Deli located at the Forum Shops in Las Vegas, Nevada and
Red located at the South Street Seaport in New York) and one in fiscal 1999
(Thunder Grill in Union Station, Washington, D.C.). During fiscal 2000, the
Company opened two restaurants and four food court facilities at the Venetian
Casino Resort and one restaurant and a 15,000 square foot food court containing
multiple outlets at the Aladdin Resort & Casino, in Las Vegas, Nevada. In fiscal
1999 and 2000, the Company continued its efforts to sell some of its smaller,
neighborhood restaurants. Two such facilities were sold in fiscal 1999 and one
was sold in fiscal 2000.
The names and themes of each of the Company's restaurants are different
except for the Company's four America restaurants, two Sequoia restaurants, two
Gonzalez y Gonzalez restaurants and two Lutece restaurants. The menus in the
Company's restaurants are extensive, offering a wide variety of high quality
foods at generally moderate prices. Of the Company's restaurants, the two Lutece
restaurants may be classified as expensive. The atmosphere at many of the
restaurants is lively and
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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 decor differs 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.
The following table sets forth certain information with respect to the
Company's facilities currently in operation and facilities with signed leases
that are intended to be opened in fiscal 2001.
<TABLE>
<CAPTION>
Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Metropolitan First Avenue 1982 4,000 180-(50) 2006
Cafe 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)
Jack Rose Eighth Avenue 1986 8,000 400 2011
New York, New York
(at 47th Street)
The Marketplace Faneuil Hall Market 1987 3,000 100 2000
Cafe(4)(5) Boston, Massachusetts
El Rio Grande Third Avenue 1987 4,000 160 2014
(4)(6) New York, New York
(between 38th and 39th
Streets)
The Brewskeller Faneuil Hall Market 1987 1,500 50 2000
Pub (4)(5) Boston, Massachusetts
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Gonzalez y Broadway 1989 6,000 250 month-to-
Gonzalez New York, New York month
(between Houston and
Bleeker Streets
America Union Station 1989 10,000 400 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2010
Washington, D.C.
Sequoia South Street Seaport 1991 12,000 300(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2009
New York, New York
(between 76th and 77th
Streets)
The Marketplace Faneuil Hall Market 1987 2,500 130 2000
Grill(4)(5) Boston, Massachusetts
America Tyson's Corner 1994 11,000 400 2014
McLean, Virginia
Lutece East 50th Street 1994 2,500 92 2019
New York, New York
(between 2nd and 3rd
Avenues)
Lorelei Islamorada, Florida 1994 10,000 400 2029
Restaurant and
Cabana Bar
Columbus Columbus Avenue 1988 3,000 75 2007
Bakery New York, New York
(between 82nd and 83rd
Streets)
Bryant Park Bryant Park 1995 25,000 180(820) 2025
Grill & Cafe New York, New York
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Columbus First Avenue 1995 2000 75 2006
Bakery New York, New York
(between 52nd and 53rd
Streets)
America New York-New York 1997 20,000 450 2017(7)
Hotel and Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,000 160 2017(7)
Hotel & Casino
Las Vegas, Nevada
Gonzalez y New York-New York 1997 2,000 120 2017(7)
Gonzalez Hotel & Casino
Las Vegas, Nevada
Village New York-New York 1997 6,300 400(9) 2017(7)
Eateries(8) Hotel & Casino
Las Vegas, Nevada
The Grill Room World Financial Center 1997 10,000 250 2012
New York, New York
The Stage Deli Forum Shops 1997 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013
Thunder Grill Union Station 1999 10,000 500 2019
Washington, D.C.
Venetian Food Venetian Casino Resort 1999 5,000 300(9) 2014
Court Las Vegas, Nevada
Tsunami Grill Venetian Casino Resort 1999 13,000 300 2019
Las Vegas, Nevada
Lutece Venetian Casino Resort 1999 6,400 90(90) 2019
Las Vegas, Nevada
Aladdin Food Aladdin Resort & 2000 15,000 400(9) 2020
Court Casino
Las Vegas, Nevada
Fat Anthony's Aladdin Resort & 2000 10,000 300 2020
Casino
Las Vegas, Nevada
</TABLE>
6
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<TABLE>
<CAPTION>
Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Chulas Venetian Casino Resort (10) 9,700 250 2019
Las Vegas, Nevada
V-Bar Venetian Casino Resort 2000 3,000 100 2015
Las Vegas, Nevada
</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.
(5) The management agreement for this restaurant will expire on December
31, 2000 and will not be renewed.
(6) The Company owns a 19% interest in the partnership which owns El Rio
Grande.
(7) Includes two five-year renewal options exercisable by the Company if
certain sales goals are achieved during the two year period prior to
the exercise of the renewal option. Under the America lease, the sales
goal is $6.0 million. Under the Gallagher's lease the sales goal is
$3.0 million. Under the lease for Gonzalez y Gonzalez and the Village
Eateries, the combined sales goal is $10.0 million. Each of the
restaurants is currently operating at a level substantially in excess
of the minimum sales level required to exercise the renewal option for
such restaurant.
(8) The Company operates nine small food court restaurants in a food court
at this hotel facility. The Company also operates the hotel's room
service, banquet facilities and employee cafeteria.
(9) Represents common area seating.
(10) This restaurant is scheduled to open in the second quarter of fiscal
2001.
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RESTAURANT EXPANSION
During fiscal 2000, the Company opened two restaurants at the Venetian
Casino Resort in Las Vegas, Nevada, where the Company also owns and operates
four fast food outlets. One restaurant, Lutece, is modeled after the New York
restaurant of the same name and opened in December 1999. The second restaurant,
Tsunami, a pan-Asian restaurant, opened in January 2000. A third restaurant,
Chulas, a Mexican restaurant, is scheduled to open in the second quarter of
fiscal 2001.
During fiscal 2000, the Company also opened one restaurant (Fat
Anthony's) and one 15,000 square foot food court facility containing multiple
outlets in the Aladdin Resort & Casino in Las Vegas, Nevada.
In April 1999, the Company opened a 500 plus seat Southwestern style
restaurant at Union Station in Washington, D.C., (Thunder Grill) where the
Company operates two other restaurants (America & Center Cafe).
During the second quarter of fiscal 1998, the Company purchased the
Stage Deli in the Forum Shops at Caesar's Shopping Center in Las Vegas, Nevada.
This 200-seat restaurant operates under a license agreement with the owner of
the original Stage Deli in New York City. During the fourth quarter of fiscal
1998, the Company opened its second restaurant at the South Street Seaport in
New York City. This facility, Red, is a 7,000 square foot restaurant with a
Southwestern theme.
During the second quarter of fiscal 1997, the Company's facilities at
the New York-New York Hotel & Casino in Las Vegas, Nevada opened. The Company's
facilities consist of a 450-seat restaurant (named America and modeled after the
Company's other America restaurants), a 160-seat steakhouse (named Gallagher's
under a license agreement from the owner of the New York restaurant of that
name), a 120-seat restaurant (named Gonzalez y Gonzalez and modeled after the
Company's New York restaurant of the same name) and a group of nine small fast
food restaurants in a food court with a New York theme. In addition, the Company
operates the hotel's room service, its banquet facilities and its employee
cafeteria.
The restaurant facilities at the New York-New York Hotel & Casino
represented 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.
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
8
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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
$2,393,000 in fiscal 2000, $400,000 in fiscal 1999 and $200,000 in fiscal 1998.
The Company's restaurants generally do not achieve substantial
increases from year to year in net sales or profits, which the Company considers
to be typical of the restaurant industry. The Company will have to continue to
open new and successful restaurants or expand or change existing restaurants to
achieve significant increases in net sales or to replace net sales of
restaurants which lose customer favor 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 trade name
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 benefiting from the high
patron traffic of unique locations, such as the Sequoia and Red restaurants in
the South Street Seaport in New York, the Sequoia restaurant in Washington
Harbour in Washington, the America restaurant in Union Station in Washington,
the Bryant Park facilities in New York and the Las Vegas facilities.
Nevertheless, the Company also intends to take advantage of other opportunities
considered to be favorable when they occur, such as the acquisition of the
highly regarded restaurant, Lutece.
RECENT RESTAURANT DISPOSITIONS
In fiscal 1997, the Company sold three of its smaller restaurants
(Mackinac Bar & Grill, The Museum Cafe and Albuquerque Eats/The Rodeo Bar), each
of which was operating at a loss at the time of its sale. In fiscal 1998, the
Company sold three of its smaller restaurants (Jim McMullen, An American Place
and Beekman 1776 Tavern). In fiscal 1999, the Company sold two of its smaller
restaurants (Perretti's in New York City and B. Smith's in Washington, D.C.).
The buyer of Perretti's defaulted on a promissory note in the amount of $220,000
issued to the Company as part of the purchase price. The buyer subsequently
filed for bankruptcy and the Company is now seeking to recover the restaurant
premises and assets.
In the third quarter of fiscal 2000, the Company terminated a
management agreement for a restaurant in New York City. The Company received
cash of $164,000 and promissory notes totaling $234,000 in consideration for its
outstanding working capital loans to the restaurant. The Company recognized a
loss of $280,000 on the transaction.
The management agreement for the three restaurants operated by the
Company in Boston will expire on December 31, 2000 and will not be renewed.
In fiscal 1999, the Company entered into an agreement to sell its
America restaurant in Tyson's Corner, McLean, Virginia, which did not close. The
Company's subsequent efforts to sell this restaurant have not been successful.
The Company continuously assessed the carrying value of this restaurant in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
To Be Disposed Of, and determined that the restaurant value was impaired based
upon the future undiscounted anticipated
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cash flows. The Company assessed the discounted cash flow value of the property
and it recorded an impairment charge of $810,769 in the fourth quarter of fiscal
2000.
The Company was a partner with a 50% interest in a partnership that was
formed to develop and construct four restaurants at a large theatre development
in Southfield, Michigan. In March 2000, the Company withdrew from the project
and incurred charges, during fiscal 2000, of $4,988,000 from the write-off of
advances for construction costs and working capital needs on the project.
RESTAURANT MANAGEMENT
Each restaurant is managed by its own manager and has its own chef.
Food products and other supplies are purchased from various unaffiliated
suppliers, in most cases by the Company's headquarters personnel. Each of the
Company's restaurants has two or more assistant managers and assistant chefs.
The executive chef department designs menus and supervises the kitchens.
Financial and management control is maintained at the corporate level through
the use of an automated data processing system that includes centralized
accounting and reporting. The Company has developed its own proprietary software
which processes information input daily at the Company's restaurants. The
Company believes that the information generated by this process enables it to
monitor closely the activities at each restaurant and enhances the Company's
ability to effectively manage its restaurants.
EMPLOYEES
At December 9, 2000, the Company employed 2,460 persons (including
employees at managed facilities), 1,882 of whom were full-time employees, 578 of
whom were part-time employees, 39 of whom were headquarters personnel, 208 of
whom were restaurant management personnel, 751 of whom were kitchen personnel
and 1,462 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 some 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.
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SEASONAL NATURE OF BUSINESS
The Company's business is highly seasonal. The second quarter of the
Company's fiscal year, consisting of the non-holiday portion of the cold weather
season in New York, Boston and Washington (January, February and March), is the
poorest performing quarter. The Company achieves its best results during the
warm weather, attributable to the Company's extensive outdoor dining
availability, particularly at Bryant Park and Sequoia in Washington (the
Company's largest restaurants) and the Company's outdoor cafes. The Company's
facilities in Las Vegas operate on a more level basis through the year.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as throughout this report
generally. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below.
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.
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 or change 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 trade name currently used by the
Company, thereby requiring each new restaurant to establish its own identity.
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.
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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 (including
leases for managed restaurants) have terms (including any available renewal
options) expiring as follows:
<TABLE>
<CAPTION>
Years Lease Number of
Term Expire Facilities
----------- ----------
<S> <C>
2001-2005 1
2006-2010 10
2011-2015 7
2016-2020 11
2021-2025 1
2026-2030 1
</TABLE>
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.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is a party to
various lawsuits arising from accidents at its restaurants and workmen's
compensation claims, which are generally handled by the Company's insurance
carriers.
The employment by the Company of management personnel, waiters,
waitresses and kitchen staff at a number of different restaurants has resulted
in the institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe that any
of such suits will have a materially adverse effect upon the Company, its
financial condition or operations.
A lawsuit was commenced against the Company in 1995 in the U.S.
District Court for the District of Columbia. The plaintiff, a former employee,
alleges violations of the District of Columbia Human Rights Act and 42 U.S.C.
Section 1981. The dispute with the plaintiff was settled for approximately
$15,000. Counsel for plaintiff is now seeking attorney's fees in the amount of
approximately $130,000. A magistrate denied the request and this issue is on
appeal.
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A lawsuit was commenced against the Company in October 1997 in the
District Court for the Southern District of New York by 44 present and former
employees alleging various violations of Federal wage and hour laws. The
complaint seeks an injunction against further violations of the labor laws and
payment of unpaid minimum wages, overtime and other allegedly required amounts,
liquidated damages, penalties and attorney's fees. The Company believes that
there were certain violations of overtime requirements, which have today been
largely corrected, for which the Company will have liability. The period of time
in which affected employees could "opt-in" to the lawsuit asserting similar
violations has expired and a total of 214 individuals have so elected. Discovery
in this action has not been completed. The parties are currently discussing
settlement of this matter. Based upon the settlement discussions, in the fourth
quarter of fiscal 2000 the Company recorded a charge of $1,300,000 in connection
with this matter.
In addition, several unfair labor practice charges were filed against
the Company in 1997 and 1998 with the National Labor Relations Board with
respect to the Company's Las Vegas subsidiary. The 1997 charges were
consolidated for a hearing which was conducted in October 1997. At issue was
whether the Company unlawfully terminated nine employees and disciplined six
other employees allegedly in retaliation for their union activities. An
Administrative Law Judge (ALJ) found that six employees were terminated
unlawfully and three were discharged for valid reasons. Concerning the allegedly
retaliatory discipline, the ALJ found that the Company acted legally in
disciplining four employees but not lawfully with respect to two employees. The
Company has appealed the adverse rulings of the ALJ to the National Labor
Relations Board in Washington, D.C., and is waiting for a decision. The Company
believes that there are reasonable grounds for obtaining a reversal of the
unfavorable findings by the ALJ and does not believe that an adverse outcome in
this proceeding will have a material adverse effect upon the Company's financial
condition or operations.
In May 1999, in the second case, the ALJ issued a favorable decision
involving unfair labor practice charges filed in 1998 against the Company before
the National Labor Relations Board with respect to the Company's Las Vegas
subsidiary. The complaint alleged that four employees were terminated and three
other employees disciplined because of their union activities. The ALJ found
that none of the employees were terminated or disciplined for inappropriate
reasons. The ALJ found two violations of management communications rules for
which non-economic remedies were proposed. This case, involving the 1998
charges, was closed in September 1999.
The Company does not believe that an adverse outcome in any of the
unfair labor practice charges will have a material adverse effect upon the
Company's financial condition or operations.
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:
<TABLE>
<CAPTION>
Name Age Positions and Offices
---- --- ---------------------
<S> <C> <C>
Michael Weinstein 57 President
Vincent Pascal 57 Vice President and Secretary
Robert Towers 53 Vice President and Treasurer
Andrew Kuruc 42 Vice President and Controller
Paul Gordon 49 Vice President
</TABLE>
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.
Paul Gordon has been employed by the Company since 1983 and was elected
as a director in November 1996. He was elected Vice President of the Company in
March 1998. Mr. Gordon is the manager of the Company's Las Vegas operations and
Vice President and a director of the Company's Las Vegas subsidiaries. Prior to
assuming that role in 1996, Mr. Gordon was the manager of the Company's
operations in Washington, D.C. since 1989.
14
<PAGE>
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
4,1998 through September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Calendar 1998 High Low
------------- ---- ---
<S> <C> <C>
Fourth Quarter 11 5/8 8 1/4
Calendar 1999
-------------
First Quarter 10 1/4 9 1/2
Second Quarter 11 9 3/8
Third Quarter 11 5/8 9 3/8
Fourth Quarter 10 1/4 8 1/4
Calendar 2000
-------------
First Quarter 9 6 1/8
Second Quarter 8 1/4 6 1/2
Third Quarter 10 5 3/4
</TABLE>
DIVIDENDS
The Company has not any paid cash dividends since its inception and
does not intend to pay dividends in the foreseeable future.
NUMBER OF SHAREHOLDERS
As of December 22, 2000, there were 74 holders of record of the
Company's Common Stock.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain financial data for the fiscal
years ended 1996 through 2000. 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>
YEARS ENDED
-------------------------------------------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $119,212,486 $110,800,913 $117,398,453 $104,326,386 $76,795,940
Gross restaurant profit 88,196,382 81,499,610 86,132,751 75,874,499 55,934,475
Operating income (loss) (3,967,961) 6,833,874 7,589,465 2,785,713 497,996
Other income expense, net (1,396,758) 236,465 91,417 96,550 743,615
Income (loss) before
provision for income taxes
and cumulative effect of
accounting change (5,439,719) 7,070,339 7,680,882 2,882,263 1,241,611
Income before
cumulative effect on
accounting change (3,533,617) 4,494,731 4,612,141 1,737,655 788,762
NET INCOME (LOSS) (3,723,130) 4,494,731 4,612,141 1,737,655 788,762
NET INCOME (LOSS)
PER SHARE:
Basic $ (1.11) $ 1.30 $ 1.21 $ 0.47 $ 0.24
Diluted $ (1.11) $ 1.29 $ 1.20 $ 0.46 $ 0.24
Weighted average
number of shares
Basic 3,186,496 3,460,865 3,826,255 3,714,116 3,238,419
Diluted 3,186,496 3,475,890 3,852,019 3,742,811 3,272,857
BALANCE SHEET DATA
(end of period):
Total assets 67,015,837 47,379,103 44,045,179 42,079,098 33,020,479
Working capital (deficit) (4,919,852) (3,044,204) (719,343) (2,373,859) (1,303,920)
Long-term debt 29,520,860 7,655,406 5,014,634 6,126,797 6,403,866
Shareholders' equity 24,784,178 29,513,971 29,062,140 25,888,880 17,804,394
Shareholders' equity
per share 7.78 8.49 7.54 6.92 5.44
Facilities in operations,
end of year, including
managed 49 42 42 46 32
</TABLE>
16
<PAGE>
ITEM 7 AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ACCOUNTING PERIOD
The Company's fiscal year ends on the Saturday nearest September 30.
The fiscal years ended September 30, 2000 and October 2, 1999 included 52 weeks
while the fiscal year ended October 3, 1998 included 53 weeks.
NET SALES
Net sales at restaurants owned by the Company increased by 7.6% from
fiscal 1999 to fiscal 2000 and decreased by 5.6% from fiscal 1998 to fiscal
1999. Net sales increased by $8,749,000 from sales at restaurants which the
Company either opened this year or did not operate for the full period last year
(The Venetian Casino Resort concepts: Lutece, Tsunami and four food court
outlets; the Aladdin Resort and Casino concepts: Fat Anthony's and the Alakazam
Food Court; and Thunder Grill in Washington, DC ). Net sales also increased by
$3,764,000 from a 3.6% increase in same store sales. The components of this
increase consisted of a 4.4% increase in the Company's Las Vegas operations
along with a 3.1% increase in the Company's other operations. The increase in
net sales in fiscal 2000 was offset in part by the loss of sales totaling
$4,102,000 at restaurants that the Company no longer operates (B. Smith's DC,
Perretti Italian Cafe, Louisiana Community Bar & Grill and B. Smith's New York).
Net sales for fiscal 1999 decreased by $8,586,000 from the loss of
sales at restaurants which the Company no longer operates (B. Smith's DC and
Perretti Italian Cafe were sold in fiscal 1999 and An American Place and the
Beekman 1766 Tavern were sold in fiscal 1998). Additionally fiscal 1999 included
52 weeks while fiscal 1998 included 53 weeks. This decrease in fiscal 1999 was
offset in part by $3,827,000 in net sales from restaurants and food court
operations which either opened in fiscal 1999 (Thunder Grill and Rialto Deli) or
did not operate for the full fiscal 1998 year (Red opened in the fourth quarter
of fiscal 1998). Same store sales were basically unchanged for the year. Same
store sales for the year at the Company's Las Vegas operations increased by 2.0%
offset by a 0.8% decrease at the Company's non-Las Vegas operations.
COSTS AND EXPENSES
The Company's cost of sales consists principally of food and beverage
costs at restaurants owned by the Company. Cost of sales as a percentage of net
sales was 26.0% in fiscal 2000, 26.4% in fiscal 1999, and 26.6% in fiscal 1998.
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 67.6% in fiscal 2000 and 62.7% in both fiscal 1999
and fiscal 1998. Operating expenses for fiscal 2000 were adversely affected by
an impairment charge of $811,000 associated with the anticipated sale of a
restaurant (America in McLean, Virginia), expenses of $280,000 from the sale of
a managed restaurant (Arlo) and a $1,300,000 charge associated with a wage and
hour lawsuit. Operating expenses in the fiscal 1999 are net of gains on sale of
restaurants totaling $752,000 while gains on sales in the fiscal 2000 year
totaled $87,000.
17
<PAGE>
Restaurant payroll was 36.1% of sales in fiscal 2000, 35.4% in fiscal
1999, and 35.1% in fiscal 1998, while occupancy expenses were 12.8% of sales in
fiscal 2000, 12.2% in fiscal 1999 and 11.7% in fiscal 1998. Restaurant payroll
and occupancy expenses were both impacted by expenses associated with newly
opened restaurant operations in fiscal 2000. Other operating expenses were 14.6%
of sales in fiscal 2000, 11.4% in fiscal 1999 and 12.5% in fiscal 1998. Other
operating expenses were adversely affected by the impairment charge associated
with the anticipated sale of America in McLean, Virginia, expenses from the sale
of the managed restaurant Arlo and the charge associated with the wage and hour
lawsuit.
The Company incurred pre-opening expenses and early operating losses at
newly opened restaurants of approximately $2,393,000 in fiscal 2000, $400,000 in
fiscal 1999 and $200,000 in fiscal 1998. The fiscal 2000 expenses and losses
were from opening restaurants and food court operations within two Las Vegas
casinos (Lutece and Tsunami in the Venetian Casino Resort along with four food
court outlets; and Fat Anthony's and the food court outlets in the Aladdin
Resort and Casino). The Company also converted an existing restaurant in New
York City (B. Smith's New York was changed to Jack Rose). 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
6.0% in fiscal 2000, 5.5% in fiscal 1999 and 5.2% in 1998. 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 5.6% in
fiscal 2000, 5.0% in fiscal 1999, and 4.7% in fiscal 1998. A significant portion
of the increase in fiscal 2000 as compared to fiscal 1999 is due to costs
associated with the expansion of the Company's corporate sales department,
travel expenditures associated with the new openings in Las Vegas and legal
expenditures from the wage and hour lawsuit.
As of September 30, 2000, the Company managed four restaurants owned by
others (El Rio Grande in Manhattan, the Marketplace Cafe, the Marketplace Grill,
and the Brewskeller Pub in Boston, Massachusetts). Net sales of these restaurant
facilities, which are not included in consolidated net sales were $8,867,000 in
fiscal 2000, $9,804,000 in fiscal 1999, and $12,740,000 in fiscal 1998. The
decrease in net sale of managed operations is principally due to the termination
of a management contract. The management agreement for the three Boston
restaurants will expire on December 31, 2000 and will not be renewed. The
contribution of these restaurants to management fee income was $278,000 in
fiscal 2000, $496,000 in fiscal 1999 and $446,000 in fiscal 1998.
The Company was a partner with a 50% interest in a partnership that was
formed to develop and construct four restaurants at a large theatre development
in Southfield, Michigan. In March 2000, the Company withdrew form the project
and incurred charges, during fiscal 2000, of $4,988,000 from the write-off of
advances for construction costs and working capital needs on the project. Such
charges are reflected as "Joint Venture Loss" on the Consolidated Statement of
Operations.
Interest expense was $2,007,000 in fiscal 2000, $425,000 in fiscal
1999, and $608,000 in fiscal 1998. The significant increase is principally due
to borrowings to finance the construction costs and working capital requirements
of the Las Vegas restaurant facilities which opened in fiscal 2000.
18
<PAGE>
Interest income was $172,000 in fiscal 2000, $226,000 in fiscal 1999,
and $210,000 in fiscal 1998.
Other income, which generally consists of purchasing service fees, and
the sale of logo merchandise at various restaurants, was $438,000 in fiscal
2000, $436,000 in fiscal 1999 and, $490,000 in fiscal 1998.
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. Due to losses incurred
in fiscal 2000 and the carryback of such losses, the Company realized an overall
tax benefit in fiscal 2000 of 35% of such losses. The Company's effective tax
rate was 36.4% in fiscal 1999 and 40% in fiscal 1998.
The Company's overall effective tax rate in the future will be affected
by factors such as the level of losses incurred at the Company's New York
facilities (which cannot be consolidated for state and local tax purposes),
pre-tax income earned outside of New York City (Nevada has no state income tax
and other states in which the Company operate have income tax rates
substantially lower in comparison to New York) and the utilization of state and
local net operating loss carry forwards. In order to more effectively utilize
tax loss carry forwards at restaurants that were unprofitable, the Company has
merged certain profitable subsidiaries with certain loss subsidiaries.
As a result of the enactment of the Revenue Reconciliation Act of 1993,
the Company is entitled, commencing January 1, 1994, to a tax credit based on
the amount of FICA taxes paid by the Company with respect to the tip income of
restaurant service personnel. The net benefit to the Company was $503,000 in
fiscal 2000, $512,000 in fiscal 1999, and $506,000 in fiscal 1998.
The Company and the Internal Revenue Service finalized the adjustments
to the Company's Federal Income Tax returns for the fiscal years ended September
28, 1991 through October 1, 1994. The final adjustments primarily related to (i)
legal and accounting expenses incurred in connection with new or acquired
restaurants that the Internal Revenue Service asserts should have been
capitalized and amortized rather than currently expensed and (ii) travel and
meal expenses for which the Internal Revenue Service asserted that the Company
did not comply with certain record keeping requirements of the Internal Revenue
Code. The settlement did not have a material effect on the Company's financial
condition. The Internal Revenue Service is currently examining the Company's
returns for the fiscal years ended September 30, 1995 through September 27,
1997. The Company does not expect the results from such examination to have a
material effect on the Company's financial condition.
19
<PAGE>
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, Bank
Leumi USA. The Company from time to time also utilizes equipment financing in
connection with the construction of a restaurant and seller financing in
connection with the acquisition of a restaurant. 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 2000 ($25,243,000),
fiscal 1999 ($6,096,000), and fiscal 1998 ($4,179,000) was principally for the
Company's continued investment in fixed assets associated with constructing new
restaurants and acquiring existing restaurants. In fiscal 2000 the Company
opened two restaurants and four food court outlets in The Venetian Casino Resort
in Las Vegas, Nevada (Lutece, Tsunami and the food court outlets), and the
Company opened one restaurant and six food court outlets in the Aladdin Resort
and Casino in Las Vegas, Nevada (Fat Anthony's and the Alakazam Food Court). In
fiscal 1999, the Company opened a restaurant in Union Station in Washington, DC
(Thunder Grill) and began constructing the restaurants and food court outlets at
the Venetian Casino Resort in Las Vegas, Nevada. In fiscal 1998 the Company
acquired an existing restaurant in Las Vegas (the Stage Deli).
The net cash provided from financing activities in fiscal 2000
($20,710,000) was principally from borrowings on the Company's Revolving Credit
Facility. The net cash used in financing activities in fiscal 1999 ($1,632,000)
was due to the repurchase of 423,000 shares of the Company's outstanding common
stock offset by a net increase in long-term debt in excess of debt repayments.
The net cash used in financing activities in fiscal 1998 ($2,825,000) was
principally due to the repurchase of 159,000 shares of the Company's outstanding
common stock and repayments of debt on the Company's main credit facility in
excess of borrowings on such facility.
At September 30, 2000 the Company had a working capital deficit of
$4,919,852 as compared to working capital deficit of $3,044,204 at October
2,1999. Working capital deficit in fiscal 2000 was significantly impacted by
cash expended for the construction of the new Las Vegas facilities and the new
restaurants at the Star Theatres entertainment center in Southfield, Michigan.
The restaurant business does not require the maintenance of significant
inventories or receivables; thus the Company is able to operate with negative
working capital.
At fiscal 2000 year end, the Company's Revolving Credit and Term Loan
Facility with its main bank included a $27,500,000 facility for use in
construction of and acquisition of new restaurants and for working capital
purposes at the Company's existing restaurants. The facility allowed the Company
to borrow up to $27,500,000 until December 2001 at which time outstanding loans
in excess of $22,000,000 became due in full while the balance could be converted
into a term loan payable over three years. The loans bore interest at a rate of
prime plus 1/2%. At September 30, 2000 the Company had borrowings of $27,150,000
outstanding on the facility. The Company also had a $2,500,000 Letter of Credit
Facility for use in lieu of lease security deposits. At September 30, 2000 the
Company had delivered $1,489,000 in irrevocable letters of credit on this
facility.
20
<PAGE>
In November 2000 the Company and its main bank, Bank Leumi USA amended
its Revolving Credit Facility. The amended agreement allows the Company to
borrow up to $28,500,000 for use in construction of and acquisition of new
restaurants and for working capital purposes at the Company's existing
restaurants. The Company is required to repay any borrowings to the extent such
borrowings exceed $26,000,000 on June 30, 2001, $23,000,000 on September 30,
2001 and $22,000,000 on December 27, 2001. At December 27, 2001 the revolving
loans will be converted into term loans payable over 36 months. Outstanding
loans bear interest at prime plus 1/2%. The commitment also includes a
$1,500,000 Letter of Credit Facility for use at the Company's restaurants in
lieu of lease security deposits.
The amount of indebtedness that may be incurred by the Company is
limited by the Revolving Credit Facility. Certain provisions of the agreement
may impair the Company's ability to borrow funds. The agreement contains certain
financial covenants such as minimum cash flow in relation to the Company's debt
service requirements, ratio of debt to equity, and the maintenance of minimum
shareholders' equity. At September 30, 2000, the Company was not in compliance
with several of the requirements of the agreement principally due to withdrawal
from the Southfield, Michigan project and received a waiver from the bank on
those requirements. The Company and its bank have modified the covenants in
effect at September 30, 2000.
In January 1997, pursuant to an equipment financing facility, the
Company borrowed from its main bank $2,851,000 at an interest rate of 8.75% to
refinance the purchase of various restaurant equipment at the New York-New York
Hotel & Casino Resort. The note, which is payable in 60 equal monthly
installments through January 2002, is secured by such restaurant equipment. At
September 30, 2000 the Company had $885,000 outstanding on this facility.
In April 2000, pursuant to an equipment financing facility, the Company
borrowed from its main bank $1,570,000 at an interest rate of 8.8% to refinance
the purchase of various restaurant equipment at the Venetian Casino Resort. The
note which is payable in 60 equal monthly installments through May 2005, is
secured by such restaurant equipment. At September 30, 2000 the Company had
$1,485,000 outstanding on this facility.
In November 2000, the Company entered into a sale and leaseback
agreement with GE Capital for $1,652,000 to refinance the purchase of various
restaurant equipment at its food and beverage facilities in a hotel and casino
in Las Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable
in 48 equal monthly installments of $31,785 until maturity in November 2004 at
which time the Company has an option to purchase the equipment for $519,440.
Alternatively, the Company can extend the lease for an additional 12 months at
the same monthly payment until maturity in November 2005 and repurchase the
equipment at such time for $165,242.
RESTAURANT EXPANSION
In fiscal 2000, the Company opened two restaurants (Tsunami and Lutece)
along with 3 food court outlets at the Venetian Casino Resort in Las Vegas,
Nevada. One additional restaurant is scheduled to open in the second quarter of
fiscal 2001 (Chulas). In fiscal 2000, the Company also opened one restaurant
(Fat Anthony's) along with six food court outlets (Alakazam Food Bazaar) at the
Aladdin Resort Casino in Las Vegas, Nevada.
21
<PAGE>
The Company is not currently committed to any other projects. Any new
projects would require additional external financing.
RECENT DEVELOPMENTS
The Financial Accounting Standards Board has recently issued a new
accounting pronouncement:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 137 and 138, establishes standards for
measuring, classifying and reporting all derivative financial instruments in the
financial statements. SFAS No. 133 is effective for the Company beginning the
first quarter of fiscal year 2001. The Company does not expect the adoption of
this standard to have a material impact on the Company's financial position or
results of operations.
YEAR 2000
To date there have been no adverse effects to the Company's financial
statements as a result of the year 2000 issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
22
<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 29, 2001
pursuant to Regulation 14A of the General Rules and Regulations
("Regulation14A") 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 29,
2001 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 29,
2001 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 29,
2001 pursuant to Regulation 14A.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) (1) FINANCIAL STATEMENTS: PAGE
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets --
at September 30, 2000 and October 2, 1999 F-2
Consolidated Statements of Operations --
For each of the three fiscal years ended
September 30, 2000, October 2, 1999
and October 3, 1998 F-3
Consolidated Statements of Cash Flows --
For each of the three fiscal years ended
September 30, 2000, October 2, 1999
and October 3, 1998 F-4
Consolidated Statements of Shareholders' Equity --
For each of the three fiscal years ended
September 30, 2000, October 2, 1999
and October 3, 1998 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
<TABLE>
<CAPTION>
(2) EXHIBITS:
<S> <C>
3.1 Certificate of Incorporation of the Registration, filed on
January 4, 1998, 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 Fourth Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA,
incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 2, 1999.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, incorporated
by reference to Exhibit 10.53 to the March 1996 10-Q.
10.6 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas America Corp., incorporated by
reference to Exhibit 10.4 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended October 3, 1998 (the
"1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Festival Food Corp., incorporated
by reference to Exhibit 10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Steakhouse Corp., incorporated by
reference to Exhibit 10.8 to the 1998 10-K.
*10.9 Amendment dated August 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA.
*10.10 Amendment dated November 21, 2000 to the Fourth Amended
and Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA.
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
</TABLE>
----------------------
*Filed Herewith
(b) Reports on Form 8-K:
None.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants
Corp. and its subsidiaries as of September 30, 2000 and October 2, 1999, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three fiscal years in the period ended September 30, 2000.
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 auditing standards generally accepted
in the United States of America. 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 30, 2000 and October 2, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche, LLP
New York, New York
December 1, 2000
F-1
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 697,385 $ 333,621
Accounts receivable 4,045,215 3,073,615
Current portion of long-term receivables (Note 2) 1,427,243 446,043
Inventories 2,132,983 1,916,436
Deferred income taxes (Note 12) 1,694,016 710,095
Prepaid expenses and other current assets 347,174 336,041
Refundable and prepaid income taxes 1,307,524 --
----------- -----------
Total current assets 11,651,540 6,815,851
----------- -----------
LONG-TERM RECEIVABLES (Note 2) 1,129,638 1,184,331
ASSETS HELD FOR SALE (Note 3) -- 988,004
FIXED ASSETS - At cost:
Leasehold improvements 38,099,297 23,500,280
Furniture, fixtures and equipment 31,156,691 19,352,078
Leasehold improvements in progress 266,950 4,408,071
----------- -----------
69,522,938 47,260,429
Less accumulated depreciation and amortization 22,324,552 18,162,614
----------- -----------
47,198,386 29,097,815
----------- -----------
INTANGIBLE ASSETS - Net (Note 4) 4,569,569 5,294,531
DEFERRED INCOME TAXES (Note 12) 1,532,758 846,657
OTHER ASSETS (Note 5) 933,946 3,151,914
----------- -----------
$67,015,837 $47,379,103
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 5,291,885 $ 3,815,760
Accrued expenses and other current liabilities (Note 6) 6,205,915 4,736,897
Current maturities of capital lease obligations (Note 8) -- 148,657
Current maturities of long-term debt (Note 7) 5,073,592 972,330
Accrued income taxes (Note 12) -- 186,411
----------- -----------
Total current liabilities 16,571,392 9,860,055
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES (Note 8) -- --
LONG-TERM DEBT - Net of current maturities (Notes 4 and 7) 24,447,268 6,683,076
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 1,213,000 1,322,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 8) -- --
SHAREHOLDERS' EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share - authorized, 10,000,000
shares; issued, 5,249,336 and 5,208,336 shares, respectively 52,494 52,084
Additional paid-in capital 14,743,118 14,399,956
Retained earnings 18,336,859 22,059,989
----------- -----------
33,132,471 36,512,029
Less treasury stock, 2,067,637 and 1,927,037 shares 8,348,294 6,998,057
----------- -----------
24,784,177 29,513,972
----------- -----------
$67,015,837 $47,379,103
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
<S> <C> <C> <C>
NET SALES $119,212,486 $110,800,913 $117,398,453
COST OF SALES 31,016,104 29,301,303 31,265,702
------------ ------------ ------------
Gross restaurant profit 88,196,382 81,499,610 86,132,751
MANAGEMENT FEE INCOME (Note 11) 473,895 869,254 1,139,799
JOINT VENTURE LOSS (Note 5) (4,988,000) -- --
------------ ------------ ------------
83,682,277 82,368,864 87,272,550
------------ ------------ ------------
RESTAURANT OPERATING EXPENSES:
Payroll and payroll benefits 43,063,142 39,254,439 41,171,865
Occupancy 15,309,525 13,492,931 13,788,992
Depreciation and amortization 4,885,286 4,062,849 3,998,272
Other 17,356,386 12,654,868 14,671,521
------------ ------------ ------------
80,614,339 69,465,087 73,630,650
------------ ------------ ------------
INCOME FROM RESTAURANT OPERATIONS 3,067,938 12,903,777 13,641,900
GENERAL AND ADMINISTRATIVE EXPENSES 7,110,899 6,069,903 6,052,435
------------ ------------ ------------
OPERATING INCOME (LOSS) (4,042,961) 6,833,874 7,589,465
------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense (Note 7) 2,007,013 425,141 608,278
Interest income (171,977) (225,996) (209,577)
Other income (Note 13) (438,278) (435,610) (490,118)
------------ ------------ ------------
1,396,758 (236,465) (91,417)
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (5,439,719) 7,070,339 7,680,882
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12) (1,906,102) 2,575,608 3,068,741
------------ ------------ ------------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (3,533,617) $ 4,494,731 $ 4,612,141
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, Net $ (189,513) $ -- $ --
------------ ------------ ------------
NET INCOME (LOSS) $ (3,723,130) $ 4,494,731 $ 4,612,141
============ ============ ============
NET INCOME PER SHARE - BASIC
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (1.11) $ 1.30 $ 1.21
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ (0.06) $ -- $ --
------------ ------------ ------------
NET INCOME (LOSS) $ (1.17) $ 1.30 $ 1.21
============ ============ ============
NET INCOME PER SHARE - DILUTED
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (1.11) $ 1.29 $ 1.20
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (0.06) -- --
------------ ------------ ------------
NET (LOSS) INCOME $ (1.17) $ 1.29 $ 1.20
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,186,496 3,460,865 3,826,255
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,186,496 3,475,980 3,852,019
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before cumulative effect of accounting change $ (3,533,617) $ 4,494,731 $ 4,612,141
Cumulative effect of accounting change (189,513) -- --
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of fixed assets 4,334,092 3,330,568 3,432,104
Amortization of intangibles 551,194 732,281 566,168
Gain on sale of restaurants (87,586) (752,274) (258,684)
Write-off of joint venture advances 4,988,000 -- --
Impairment of assets held for sale 810,769 -- --
Write-off of accounts receivables 279,394 -- --
Operating lease deferred credit (109,000) (149,000) (57,000)
Deferred income taxes (1,670,022) 382,624 57,164
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,250,994) 376,692 (663,873)
(Increase) decrease in inventories (216,547) 33,710 (17,020)
(Increase) decrease in prepaid expenses and other current assets (11,133) 155,088 (58,313)
(Increase) in refundable and prepaid income taxes (1,307,524) -- --
(Increase) in other assets, net (449,295) (2,111,012) (543,820)
Increase in accounts payable - trade 1,476,125 252,692 2,818
Increase (Decrease) in accrued income taxes (186,411) (518,722) 291,263
Increase (decrease) in accrued expenses and other current
liabilities 1,469,018 811,130 (58,590)
------------ ----------- -----------
Net cash provided by operating activities 4,896,950 7,038,508 7,304,358
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (22,262,509) (6,989,405) (1,713,847)
Additions to intangible assets -- (384,880) (229,524)
Advances to joint venture, net (3,297,000) -- --
Issuance of demand notes and long-term receivables (93,530) (95,611) (81,580)
Payments received on demand notes and long-term receivables 409,559 398,869 315,908
Restaurant sales -- 975,000 265,000
Restaurant acquisitions -- -- (2,735,000)
------------ ----------- -----------
Net cash used in investing activities (25,243,480) (6,096,027) (4,179,043)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (3,154,580) (5,659,226) (8,012,164)
Issuance of long-term debt 25,020,034 8,300,000 6,900,000
Exercise of stock options 343,572 185,263 83,615
Principal payment on capital lease obligations (148,495) (229,781) (273,507)
Purchase of treasury stock (1,350,237) (4,228,162) (1,522,496)
------------ ----------- -----------
Net cash provided by (used in) financing activities 20,710,294 (1,631,906) (2,824,552)
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 363,764 (689,425) 300,763
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 333,621 1,023,046 722,283
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 697,385 $ 333,621 $ 1,023,046
------------ ----------- -----------
------------ ----------- -----------
SUPPLEMENTAL INFORMATION:
Cash payments for the following were:
Interest $ 2,245,013 $ 526,382 $ 608,278
------------ ----------- -----------
------------ ----------- -----------
Income taxes $ 1,113,395 $ 2,690,443 $ 2,699,651
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, OCTOBER 2, 1999 AND OCTOBER 3, 1998
--------------------------------------------------------------------------------
<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, SEPTEMBER 27, 1997 5,177,836 $ 51,779 $14,131,383 $12,953,117 $(1,247,399) $25,888,880
Exercise of stock options 10,000 100 64,900 -- -- 65,000
Purchase of treasury stock -- -- -- -- (1,522,496) (1,522,496)
Tax benefit on exercise of options -- -- 18,615 -- -- 18,615
Net income -- -- -- 4,612,141 -- 4,612,141
--------- --------- ----------- ----------- ----------- ------------
BALANCE, OCTOBER 3, 1998 5,187,836 51,879 14,214,898 17,565,258 (2,769,895) 29,062,140
Exercise of stock options 20,500 205 163,795 -- -- 164,000
Purchase of treasury stock -- -- -- -- (4,228,162) (4,228,162)
Tax benefit on exercise of options -- -- 21,263 -- -- 21,263
Net income -- -- -- 4,494,731 -- 4,494,731
--------- --------- ----------- ----------- ----------- ------------
BALANCE, OCTOBER 2, 1999 5,208,336 52,084 14,399,956 22,059,989 (6,998,057) 29,513,972
Exercise of stock options 41,000 410 327,590 -- -- 328,000
Purchase of treasury stock -- -- -- -- (1,350,237) (1,350,237)
Tax benefit on exercise of options -- -- 15,572 -- -- 15,572
Net Loss -- -- -- (3,723,130) -- (3,723,130)
--------- --------- ----------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30, 2000 5,249,336 $ 52,494 $14,743,118 $18,336,859 $(8,348,294) $24,784,177
--------- --------- ----------- ----------- ----------- ------------
--------- --------- ----------- ----------- ----------- ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, OCTOBER 2, 1999 AND OCTOBER 3, 1998
--------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 24
restaurants, and manage four restaurants, of which 12 are in New York
City, four in Washington, D.C., seven in Las Vegas, Nevada, three in
Boston, Massachusetts and one each in McLean, Virginia, and Islamorada,
Florida. The Las Vegas operations include three restaurants within the New
York-New York Hotel & Casino Resort and operation of the Resort's room
service, banquet facilities, employee dining room and nine smaller cafe
operations; two restaurants within the Venetian Casino Resort as well as
four food court concepts; one restaurant within the Aladin Casino Resort
along with six food court concepts; and one restaurant within the Forum
Shops at Caesar's Shopping Center. The Company's other operations include
catering businesses in New York City and Washington, D.C., and wholesale
and retail bakeries in New York City.
ACCOUNTING PERIOD - The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal years ended September 30, 2000 and October 2,
1999, included 52 weeks and the fiscal year ended October 3, 1998,
included 53 weeks.
SIGNIFICANT ESTIMATES - In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value
of certain assets and liabilities which are not readily apparent from
other sources. The primary estimates underlying the Company's financial
statements include allowances for potential bad debts on accounts and
notes receivable, the useful lives and recoverability of its assets, such
as property and intangibles, fair values of financial instruments, the
realizable value of its tax assets and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the
circumstances, and while actual results could differ from those estimates,
management does not believe that any change in those assumptions in the
near term would have a material effect on the Company's consolidated
financial position or the results of operation.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned and majority
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in affiliated companies
where the Company is able to exercise significant influence over operating
and financial policies even though the Company holds 50% or less of the
voting stock, are accounted for under the equity method.
CASH EQUIVALENTS - Cash equivalents include instruments with original
maturities of three months or less.
ACCOUNTS RECEIVABLE - Included in accounts receivable are amounts due from
employees of $1,401,487 and $994,915 at September 30, 2000 and October 2,
1999, respectively. Such amounts, which are due on demand, are principally
due from 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>
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 (seven years). Amortization of improvements to leased properties is
computed using the straight-line method based upon the initial term of the
applicable lease or the estimated useful life of the improvements,
whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants
that are under construction. Once the projects have been completed the
Company will begin depreciating the assets.
The Company annually assesses any impairment in value of long-lived assets
and certain identifiable intangibles to be held and used. For the year
ended September 30, 2000 an impairment of $810,769 was incurred on a
restaurant that the Company owns in McLean, Virginia. The assets of such
restaurant had been classified as assets held for sale (see Note 3). For
the years ended October 2, 1999 and October 3, 1998, no impairments were
recognized.
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 periods ranging from 10 to
15 years.
The Company adopted in the quarter ended January 1, 2000, Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities, which
requires costs of start-up activities and organization costs to be
expensed as incurred. The Company had previously capitalized organization
costs and then amortized such costs over five years. The Company had net
deferred organization expenses of $300,000 in intangible assets as of
October 2, 1999 and such amount ($189,513 after taxes) is reported in the
fiscal year ended September 30, 2000 as a cumulative effect of a change in
accounting principle.
Covenants not to compete arising from restaurant acquisitions are
amortized over the contractual period of 5 years.
Certain legal and bank commitment fees incurred in connection with the
Company's Revolving Credit and Term Loan Facility, as discussed in Note 7,
were capitalized as deferred financing fees and are being amortized over
four years, the term of the facility.
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.
F-7
<PAGE>
INCOME PER SHARE OF COMMON STOCK - Net income per share is computed in
accordance with Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings Per Share, and is calculated on the basis of the weighted
average number of common shares outstanding during each period plus the
additional dilutive effect of common stock equivalents. Common stock
equivalents consist of dilutive stock options.
STOCK OPTIONS - The Company accounts for its stock options granted to
employees under 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 provision of SFAS No.123 had been adopted.
The Company generally does not grant options to outsiders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - In March 2000, the
Financial Accounting Standards Board ("FASB") issued Interpretation No. 44
("FIN 44"), "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB No. 25 for certain issues, including the definition
of an employee, the treatment of the acceleration of stock options and the
accounting treatment for options assumed in business combinations. FIN 44
became effective on July 1, 2000, but is applicable for certain
transactions dating back to December 1998. The adoption of FIN 44 did not
have a material impact on the Company's financial position or results of
operations.
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 137 and 138, establishes standards for measuring, classifying
and reporting all derivative financial instruments in the financial
statements. SFAS No. 133 is effective for the Company beginning the first
quarter of fiscal year 2001. The Company does not expect the adoption of
this standard to have a material impact on the Company's financial
position or results of operations.
F-8
<PAGE>
2. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
2000 1999
<S> <C> <C>
Note receivable due March 2001 (a) $ 1,000,000 $ --
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 (b) 460,149 514,706
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 (c) 72,333 112,571
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments through April 2000 (d) -- 126,796
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments commencing May 2000
through December 2008 (d) 553,734 445,118
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 10.0% interest; due in
monthly installments through April 2004 (e) 221,239 244,565
Note receivable secured by fixed assets and lease at a
restaurant at 7.0% interest; due in monthly installments
through June 2006 (f) 228,315 --
Advances for construction and working capital, at one of
the Company's managed locations, at 15% interest; due
in monthly installments through December 2000 21,111 98,110
Others -- 88,508
---------- ----------
2,556,881 1,630,374
Less current portion 1,427,243 446,043
---------- ----------
$1,129,638 $1,184,331
========== ==========
</TABLE>
(a) In March 2000, the Company withdrew from a partnership that was
formed to develop and construct four restaurants at a large
theatre development in Southfield, Michigan. The Company was
issued this note in consideration of its working capital advances
to the project. The note is noninterest bearing.
(b) 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.
F-9
<PAGE>
(c) In October 1996, the Company sold a restaurant for $258,500. Cash
of $50,000 was received on sale and the balance is due in
installments through March 2002. The Company recognized a gain of
$134,000 on this sale in the fiscal year ended September 27,
1997.
(d) In October 1997, the Company sold a restaurant for $1,750,000, of
which $200,000 was paid in cash and the balance is due in monthly
installments under the terms of two notes bearing interest at a
rate of 7.5%. One note, with an initial principal balance of
$400,000, was paid in 24 monthly installments of $18,569 through
April 2000. The second note, with an initial principal balance of
$1,150,000, will be paid in 104 monthly installments of $14,500
commencing May 2000 and ending December 2008. At December 2008,
the then outstanding balance of $519,260 matures.
The Company recognized a gain on sale of approximately $88,000
and $142,000 and $185,000 in the fiscal years ended September 30,
2000, October 2, 1999 and October 3, 1998, respectively.
Additional deferred gains totaling $794,000 and $882,000 for the
fiscal years ended September 30, 2000 and October 2, 1999,
respectively, could be recognized in future periods as the notes
are collected. The Company deferred recognizing this additional
gain and recorded an allowance for possible uncollectible note
against the second outstanding note. This uncertainty is based on
the significant length of time of this note (over 10 years) and
the substantial balance, which matures in December 2008
($519,260).
(e) In December 1998, the Company sold a restaurant for $500,000, of
which $250,000 was paid in cash and a note financed the balance
of $250,000 was financed by a note. The note is due in monthly
installments of $5,537, inclusive of interest at 10%, from May
1999 through April 2004. The Company recognized a gain of
$207,220 on this sale in the fiscal year ended October 2, 1999.
(f) In June 2000, the Company terminated the management of a
restaurant in New York City. The Company received cash of
$164,000 and notes totaling $234,000 as consideration for its
then outstanding working capital loans. The Company recognized a
loss of $280,000 on the termination.
The carrying value of the Company's long-term receivables approximates its
current aggregate fair value.
3. ASSETS HELD FOR SALE
The Company was actively pursuing the sale of one restaurant during fiscal
2000, and accordingly had reclassified the net fixed assets ($759,190) and
inventories ($51,579) as assets held for sale. The Company continuously
assessed the carrying value of this restaurant in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of.
The Company determined that it has been unsuccessful in its efforts to
sell this restaurant after two potential sales were abandoned by the
buyers. The Company determined that the restaurant value was impaired
based upon the future undiscounted anticipated cash flows. The Company
assessed the discounted cash flow value of the property and it recorded an
impairment charge of $810,769.
At October 2, 1999, the Company was actively pursuing the sale of one
restaurant and accordingly reclassified the net fixed assets ($935,097)
and inventories($52,907) as assets held for sale.
F-10
<PAGE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30, October 2,
2000 1999
<S> <C> <C>
Goodwill (a) $6,222,877 $6,222,877
Purchased leasehold rights (b) 750,740 750,740
Noncompete agreements and other (c) 790,000 790,000
Organization costs (d) -- 789,521
---------- ----------
7,763,617 8,553,138
Less accumulated amortization 3,194,048 3,258,607
---------- ----------
$4,569,569 $5,294,531
========== ==========
</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 $2,946,000 to goodwill.
(b) Purchased leasehold rights arise from acquiring leases and subleases
of various restaurants.
(c) During fiscal 1998, the Company acquired a restaurant for $2,735,000
in cash. The acquisition was accounted for as a purchase transaction
with the purchase price allocated as follows: leasehold improvements
$200,000; furniture, fixtures and equipment $300,000; and goodwill
$2,235,000.
(d) See Note 1.
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
September 30, October 2,
2000 1999
<S> <C> <C>
Deposits $276,484 $ 313,142
Deferred financing fees 171,250 144,195
Investments in and advances to affiliates (a) 486,212 2,694,577
-------- ----------
$933,946 $3,151,914
======== ==========
</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 $15,000, $65,000 and $80,000, for the years
ended September 30, 2000, October 2, 1999 and October 3, 1998,
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 $161,800, $358,000 and,
F-11
<PAGE>
$421,000 for the years ended September 30, 2000, October 2, 1999 and
October 3, 1998, respectively (Note 11).
The Company, through a wholly owned subsidiary, was a partner with a
50% interest in a partnership to construct and develop four
restaurants at a large theatre development in Southfield, Michigan.
In March 2000, the Company withdrew from the partnership and
incurred losses totaling $4,988,000 on this project. At October 2,
1999, the Company's investment in the partnership were $2,691,000
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, October 2,
2000 1999
<S> <C> <C>
Sales tax payable $ 877,765 $ 782,365
Accrued wages and payroll related costs 999,115 877,758
Customer advance deposits 1,175,000 1,083,000
Accrued and other liabilities 1,854,035 1,993,774
Litigation accrual (Note 8) 1,300,000 --
---------- ----------
$6,205,915 $4,736,897
========== ==========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, October 2,
2000 1999
<S> <C> <C>
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, payable on December 27, 2001 (a) $27,150,000 $5,850,000
Notes issued in connection with refinancing of restaurant
equipment, at 8.75%, payable in monthly installments through
January 2002 (b) 885,456 1,439,171
Notes issued in connection with refinancing of restaurant
equipment, at 8.80%, payable in monthly installments through
May 2005 (c) 1,485,404 --
Note issued in connection with acquisition of restaurant site,
at 7.25%, payable in monthly installments through
January 1, 2000 -- 366,235
----------- ----------
29,520,860 7,655,406
Less current maturities 5,073,592 972,330
----------- ----------
$24,447,268 $6,683,076
=========== ==========
</TABLE>
(a) The Company's Revolving Credit and Term Loan Facility (the
"Facility") with its main bank (Bank Leumi USA), as amended November
2000, includes a $28,000,000 facility to finance the development and
construction of new restaurants and for working capital purposes at
the
F-12
<PAGE>
Company's existing restaurants. Outstanding loans bear interest
at 1/2% above the bank's prime rate. As of September 30, 2000, the
rate of interest on the Facility was 10%. Any outstanding loans on
December 2001 in excess of $22,000,000 are due in full and the
balance can be converted into a term loan payable over 36 months.
The Facility also includes a five-year $2,000,000 Letter of Credit
Facility for use in lieu of lease security deposits. The Company
generally is required to pay commissions of 1 1/2% per annum on
outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the
Company under the foregoing facilities and granted security
interests in their respective assets as collateral for such
guarantees. In addition, the Company pledged stock of such
subsidiaries as security for obligations of the Company under such
facilities.
The agreement includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, advances to
managed businesses, mergers, sale of assets, dividends and liens on
the property of the Company. The agreement also contains financial
covenants such as minimum cash flow in relation to the Company's
debt service requirements, ratio of debt to equity, and the
maintenance of minimum shareholders' equity. At September 30, 2000,
the Company received a waiver from the bank for the covenants it was
not in compliance with.
(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 April 2000, the Company borrowed from its main bank $1,570,000 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 8.80% per annum and are payable in 60
equal monthly installments of $32,439 inclusive of interest, until
maturity in May 2005.
Required principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C> <C>
2001 $ 5,073,592
2002 7,025,019
2003 7,654,180
2004 7,683,582
2005 2,084,487
-----------
$29,520,860
===========
</TABLE>
During the fiscal years ended September 30, 2000, October 2, 1999 and
October 3, 1998, interest expense was $2,245,013, $526,411 and $608,278,
respectively, of which $238,000 and $101,000 was capitalized during the
fiscal years ended September 30, 2000 and October 2, 1999, respectively.
The carrying value of the Company's long-term debt approximates its
current aggregate fair value.
F-13
<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 30, 2000, future minimum lease payments, net of sublease
rentals, under noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
<S> <C>
2001 $ 8,010,226
2002 8,064,014
2003 8,628,534
2004 8,092,052
2005 7,205,015
Thereafter 26,269,515
-----------
Total minimum payments $66,269,356
===========
</TABLE>
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate
amount of $1,485,000 as security deposits under such leases.
Rent expense was $10,782,991, $9,638,551 and $9,940,639 during the fiscal
years ended September 30, 2000, October 2, 1999 and October 3, 1998,
respectively. Rent expense for the fiscal years ended September 30, 2000,
October 2, 1999 and October 3, 1998 includes approximately $109,000,
$149,000 and, $57,000 operating lease deferred credits, representing the
difference between rent expense recognized on a straight-line basis and
actual amounts currently payable. Contingent rentals, included in rent
expense, were $3,470,155, $2,799,585 and $2,769,721 for the fiscal years
ended September 30, 2000, October 2, 1999 and October 3, 1998,
respectively.
LEGAL PROCEEDINGS - In the ordinary course of its business, the Company is
a party to various lawsuits arising from accidents at its restaurants and
workmen's compensation claims, which are generally handled by the
Company's insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe
that any of such suits will have a materially adverse effect upon the
Company, its financial condition or operations.
A lawsuit was commenced against the Company in 1995 in the U.S. District
Court for the District of Columbia. The plaintiff, a former employee,
alleges violations of the District of Columbia Human Rights Act and 42
U.S.C. ss.1981. The dispute with the plaintiff was settled for
approximately $15,000. Counsel for plaintiff is now seeking attorneys fees
in the amount of approximately $130,000. A magistrate denied the request
and this issue is on appeal.
F-14
<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. The complaint seeks an injunction against further violations of the
labor laws and payment of unpaid minimum wages, overtime and other
allegedly required amounts, liquidated damages, penalties and attorneys
fees. The Company believes that there were certain violations of overtime
requirements, which have today been largely corrected, for which the
Company will have liability. The period of time in which affected
employees could "opt-in" to the lawsuit asserting similar violations has
expired and a total of 214 individuals have so elected. Discovery in this
action has not been completed. The parties are currently discussing
settlement of this matter. Based upon the settlement discussions, in the
fourth quarter of fiscal 2000, the Company recorded a charge of $1,300,000
in connection with this matter.
In addition, several unfair labor practice charges were filed against the
Company in 1997 and 1998 with the National Labor Relations Board with
respect to the Company's Las Vegas subsidiary. The 1997 charges were
consolidated for a hearing which was conducted in October 1997. At issue
was whether the Company unlawfully terminated nine employees and
disciplined six other employees allegedly in retaliation for their union
activities. An Administrative Law Judge (ALJ) found that six employees
were terminated unlawfully and three were discharged for valid reasons.
Concerning the allegedly retaliatory discipline, the ALJ found that the
Company acted legally in disciplining four employees but not lawfully with
respect to two employees. The Company has appealed the adverse rulings of
the ALJ to the National Labor Relations Board in Washington, D.C., and is
waiting for a decision. The Company believes that there are reasonable
grounds for obtaining a reversal of the unfavorable findings by the ALJ
and does not believe that an adverse outcome in this proceeding will have
a material adverse effect upon the Company's financial condition or
operations.
In May 1999, in the second case, the ALJ issued a favorable decision
involving unfair labor practice charges filed in 1998 against the Company
before the National Labor Relations Board with respect to the Company's
Las Vegas subsidiary. The complaint alleged that four employees were
terminated and three other employees disciplined because of their union
activities. The ALJ found that none of the employees were terminated or
disciplined for inappropriate reasons. The ALJ found two violations of
management communications rules for which non-economic remedies were
proposed. This case, involving the 1998 charges, was closed in September
1999.
The Company does not believe that an adverse outcome in any of the unfair
labor practice charges will have a material adverse effect upon the
Company's financial condition or operations.
9. SHAREHOLDERS' EQUITY
COMMON STOCK REPURCHASE PLAN - In August 1998, the Company authorized the
repurchase of up to 500,000 shares of the Company's outstanding common
stock. In April 1999, the Company authorized the repurchase of an
additional 300,000 shares of the Company's outstanding common stock. For
the years ended September 30, 2000 October 2, 1999 and October 3, 1998,
the Company repurchased 140,600, 422,700 and 159,000 shares at a total
cost of $1,350,237, $4,228,162 and $1,522,496, respectively.
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
F-15
<PAGE>
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 are exercisable at prices at least equal to the fair market
value of such stock on the dates the options were granted. The options
expire five years after the date of grant and are generally exercisable as
to 25% of the shares commencing on the first anniversary of the date of
grant and as to an additional 25% commencing on each of the second, third
and fourth anniversaries of the date of grant.
Additional information follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------------------ ------------------------
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 488,500 $ 10.65 311,500 $10.86 227,500 $10.38
Options:
Granted -- -- 214,000 10.00 100,000 11.38
Exercised (41,000) 8.00 (20,500) 8.00 (10,000) 6.50
Canceled or expired (104,000) 11.32 (16,500) 9.24 (6,000) 8.63
-------- ------- -------
Outstanding, end of year (a) 343,500 10.76 488,500 10.65 311,500 10.86
======== ======= =======
Price range, outstanding shares $9.50 - $12.00 $8.00 - $12.00 $8.00 - $12.00
Weighted average years 2.62 Years 3.3 years 3.2 years
Shares available for future grant 126,500 22,500 20,000
-------- ------- -------
Options exercisable (a) 157,125 11.24 178,917 10.78 117,583 10.13
======== ======= =======
</TABLE>
(a) Options become exercisable at various times until expiration dates
ranging from January 2002 through April 2004.
Statement of Financial Accountings Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), requires the Company to
disclose pro forma net income and pro forma earnings per share information
for employee stock option grants to employees 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 1999 include:
risk-free interest rate of 6.25%; no dividend yield; expected life of four
years; and expected volatility of 38%. The assumptions for fiscal 1998
include; risk free interest rate of 5.5%; no dividend yield; expected life
of four years; and expected volatility of 75%. There were no options
granted during the fiscal year ended September 30, 2000.
F-16
<PAGE>
The pro forma impact was as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
<S> <C> <C> <C>
Net earnings as reported $(3,533,617) $4,494,731 $4,612,141
Net earnings - pro forma (3,768,272) 4,307,357 4,464,576
Earnings per share as reported - basic $ (1.11) $ 1.30 $ 1.21
Earnings per share as reported - diluted (1.11) 1.29 1.20
Earnings per share pro forma - basic (1.18) 1.24 1.17
Earnings per share pro forma - diluted (1.18) 1.24 1.16
</TABLE>
The exercise of nonqualified stock options in the fiscal years ended
September 30, 2000, October 2, 1999, and October 3, 1998 resulted in
income tax benefits of $15,572, $21,263 and $18,615, respectively, which
were credited to additional paid-in capital. The income tax benefits
result from the difference between the market price on the exercise date
and the option price.
11. MANAGEMENT FEE INCOME
As of September 30, 2000, the Company provides management services to four
restaurants owned by outside parties. In accordance with the contractual
arrangements, the Company earns fixed fees and management fees based on
restaurant sales and operating profits as defined by the various
management agreements.
Restaurants managed had net sales of $8,867,336, $9,803,693 and
$12,738,639 during the management periods within the years ended September
30, 2000, October 2, 1999 and October 3, 1998, 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.
F-17
<PAGE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
<S> <C> <C> <C>
Current provision (benefit):
Federal $(1,129,390) $ 1,298,451 $ 1,892,997
State and local 782,310 894,533 1,117,363
----------- ----------- -----------
(347,080) 2,192,984 3,010,360
----------- ----------- -----------
Deferred provision (benefit):
Federal (1,285,920) 349,299 100,486
State and local (273,102) 33,325 (42,105)
----------- ----------- -----------
(1,559,022) 382,624 58,381
----------- ----------- -----------
$(1,906,102) $ 2,575,608 $ 3,068,741
=========== =========== ===========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the Federal statutory rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
<S> <C> <C> <C>
Provision (benefit) for Federal
income taxes (34%) $(1,849,000) $ 2,404,000 $ 2,612,000
State and local income taxes net of
Federal tax benefit 336,000 612,000 710,000
Amortization of goodwill 25,000 26,000 26,000
Tax credits (503,000) (512,000) (506,000)
Other 84,898 45,608 226,741
----------- ----------- -----------
$(1,906,102) $ 2,575,608 $ 3,068,741
=========== =========== ===========
</TABLE>
F-18
<PAGE>
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 30, OCTOBER 2,
2000 1999
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards $ 1,349,747 $ 1,035,396
Operating lease deferred credits 522,274 570,370
Carryforward tax credits 1,738,555 976,725
Depreciation and amortization 51,965 114,662
Deferred gains (235,432) (270,112)
Valuation allowance (917,998) (870,289)
Asset impairment 275,663 --
Litigation accrual 442,000 --
----------- -----------
$ 3,226,774 $ 1,556,752
=========== ===========
</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 $917,998 at September 30, 2000 and $870,289 at
October 2, 1999. The Company has state operating loss carryforwards of
$14,196,000 and local operating loss carryforwards of $9,549,734, which
expire in the years 2002 through 2015.
During the fiscal year ended September 30, 2000, the Company and the
Internal Revenue Service finalized the adjustments to the Company's Federal
income tax returns for the fiscal years ended September 28, 1991 through
October 1, 1994. The final adjustments primarily relate to (i) legal and
accounting expenses incurred in connection with new or acquired restaurants
that the Internal Revenue Service asserts should have been capitalized and
amortized rather than currently expensed and (ii) travel and meal expenses
for which the Internal Revenue Service asserts the Company did not comply
with certain record keeping requirements or the Internal Revenue Code. The
settlement did not have a material effect on the Company's financial
condition. The Internal Revenue Service is currently examining the
Company's returns for the fiscal year ended September 30, 1995 through
September 27, 1997. The Company does not expect the results from such
examination to have a material effect on the Company's financial condition.
13. OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
<S> <C> <C> <C>
Purchasing service fees $ 65,535 $ 88,061 $124,455
Sales of logo T-shirts and hats 179,562 133,819 160,596
Other 193,181 213,730 205,067
-------- -------- --------
$438,278 $435,610 $490,118
======== ======== ========
</TABLE>
F-19
<PAGE>
14. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, Financial
Accounting Standards Board Statement No. 128, "Earnings per Share," which
established new standards for computing and presenting earnings per share.
The Company now discloses "Basic Earnings per Share," which is based upon
the weighted average number of shares of common stock outstanding during
each period and "Diluted Earnings per Share," which requires the Company
to include common stock equivalents consisting of dilutive stock options
and warrants. The Company also retroactively applied the new standard to
all periods presented.
There were no dilutive stock options and warrants for the fiscal year
ended September 30, 2000. A reconciliation of the numerators and
denominators of the basic and diluted per share computations for the
fiscal years ended October 2, 1999 and October 3, 1998 follow.
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Year ended October 2, 1999:
Basic EPS $4,494,731 3,460,865 $ 1.30
Stock options and warrants -- 15,115 0.01
Diluted EPS 4,494,731 3,475,980 1.29
Year ended October 3, 1998:
Basic EPS $4,612,141 3,826,255 $ 1.21
Stock options and warrants -- 25,764 0.01
Diluted EPS 4,612,141 3,852,019 1.20
</TABLE>
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
-----------------------------------------------------------------------------
JANUARY 1, APRIL 1, JULY 1, SEPTEMBER 30,
2000 2000 2000 2000
<S> <C> <C> <C> <C>
2000
Net sales $26,956,508 $25,765,386 $33,809,752 $32,680,840
Gross restaurant profit 19,896,289 18,953,108 25,217,317 24,129,669
Cumulative effect of
accounting change (189,513) -- -- --
Net income (loss) 91,656 (4,976,492) 1,772,442 (610,736)
Net income (loss) per
share - basic and diluted $ 0.03 $ (1.56) $ 0.56 $ (0.19)
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
-----------------------------------------------------------------------------
JANUARY 3, APRIL 3, JULY 3, OCTOBER 2,
1999 1999 1999 1999
<S> <C> <C> <C> <C>
1999
Net sales $26,933,489 $23,344,731 $31,563,976 $28,958,717
Gross restaurant profit 19,823,052 16,983,679 23,408,382 21,284,497
Net income (loss) 1,025,576 (156,178) 2,115,333 1,510,000
Net income (loss) per share -
basic and diluted $ 0.28 $ (0.04) $ 0.63 $ 0.45
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDED
-----------------------------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, OCTOBER 3,
1997 1998 1998 1998
<S> <C> <C> <C> <C>
1998
Net sales $26,940,384 $25,198,012 $33,029,512 $32,230,545
Gross restaurant profit 19,692,165 18,345,554 24,432,866 23,662,166
Net income (loss) 727,441 (254,154) 2,428,676 1,710,178
Net income (loss) per share
basic and diluted $ 0.19 $ (0.07) $ 0.63 $ 0.45
</TABLE>
16. SUBSEQUENT EVENTS
AMENDMENT TO CREDIT AGREEMENT
In November 2000, the Company amended its credit agreement with its main
bank, Bank Leumi USA. The new amendment allows the Company to borrow up to
$28,500,000 for use in construction of and acquisition of new restaurants
and for working capital purposes at the Company's existing restaurants.
The Company is required to repay any borrowings which exceed $26,000,000
on June 30, 2001, $23,000,000 on September 30, 2001, and $22,000,000 on
December 27, 2001. On December 27, 2001, the revolving loans will be
converted into term loans payable over 36 months. Outstanding loans bear
interest at prime + 1/2%. The agreement also includes a five year
$1,500,000 Letter of Credit Facility for use at the Company's restaurants
in lieu of lease security deposits.
DEFAULT ON NOTE RECEIVABLE
In November 2000, the buyer of a restaurant from the Company defaulted on
a promissory note to the company in the amount of $220,000 issued as part
of the purchase price of the restaurant. The buyer subsequently filed for
bankruptcy and the Company is now seeking to recover the restaurant
premises and assets. The Company believes that it will recover the amount
due on the note.
EQUIPMENT REFINANCING
In November 2000, the Company entered into a sale and leaseback agreement
with GE Capital for $1,652,000 to refinance the purchase of various
restaurant equipment in a hotel and casino in Las Vegas, Nevada. The lease
bears interest at 8.65% per annum and is payable in 48 equal monthly
F-21
<PAGE>
installments of $31,785 until maturity in November 2004 at which time the
Company has an option to purchase the equipment for $519,440.
Alternatively, the Company can extend the lease for an additional 12
months at the same monthly payment until maturity in November 2005 and
repurchase the equipment at such time for $165,242.
******
F-22
<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 29th day of December, 2000.
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 29, 2000
---------------------------
(Ernest Bogen)
s/Michael Weinstein President and Director December 29, 2000
---------------------------
(Michael Weinstein)
s/Vincent Pascal Vice President, Secretary December 29, 2000
--------------------------- and Director
(Vincent Pascal)
s/Robert Towers Vice President, Treasurer, December 29, 2000
--------------------------- Principal Financial Officer
(Robert Towers) and Director
s/Andrew Kuruc Vice President, Controller, December 29, 2000
--------------------------- Principal Accounting Officer
(Andrew Kuruc) and Director
s/Donald D. Shack Director December 29, 2000
---------------------------
(Donald D. Shack)
s/Jay Galin Director December 29, 2000
---------------------------
(Jay Galin)
s/Paul Gordon Vice President and Director December 29, 2000
---------------------------
(Paul Gordon)
s/Bruce R. Lewin Director December 29, 2000
---------------------------
(Bruce R. Lewin)
</TABLE>
