New York 13-3156768
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
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Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value NASDAQ/NMS
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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ].
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.
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
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.
Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
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
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Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
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
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Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
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
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Spacing
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
---- -------- --------- ------------- --------- -------------
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
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(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.
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
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
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.
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.
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:
Years Lease Number of Term Expire Facilities ----------- ---------- 2001-2005 1 2006-2010 10 2011-2015 7 2016-2020 11 2021-2025 1 2026-2030 1 |
The Company's executive, administrative and clerical offices, located in approximately 8,500 square feet of office space at 85 Fifth Avenue, New York, New York, are occupied under a lease which expires in October 2008, which includes one five-year renewal option. The Company maintains an office in Washington, D.C. for its catering operations under a short-term lease.
For information concerning the Company's future minimum rental commitments under non-cancelable operating leases, see Note 8 of Notes to Consolidated Financial Statements.
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.
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.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of executive officers of the Company and all offices held by each person:
Name Age Positions and Offices ---- --- --------------------- Michael Weinstein 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 |
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.
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:
Calendar 1998 High Low ------------- ---- --- 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 |
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.
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.
YEARS ENDED
-------------------------------------------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3, SEPTEMBER 27, SEPTEMBER 28,
2000 1999 1998 1997 1996
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
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ITEM 7 AND 7A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
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.
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.
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.
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.
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.
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.
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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS: PAGE
----
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
|
(2) EXHIBITS:
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.
|
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.
|
(b) Reports on Form 8-K:
None.
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
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, OCTOBER 2,
2000 1999
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
=========== ===========
|
See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
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
============ ============ ============
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See notes to consolidated financial statements
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
---------------------------------------------------
SEPTEMBER 30, OCTOBER 2, OCTOBER 3,
2000 1999 1998
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
------------ ----------- -----------
------------ ----------- -----------
|
See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000, OCTOBER 2, 1999 AND OCTOBER 3, 1998
Common Stock Additional Total
----------------------- Paid-In Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
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
--------- --------- ----------- ----------- ----------- ------------
--------- --------- ----------- ----------- ----------- ------------
|
See notes to consolidated financial statements.
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.
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.
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.
2. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
SEPTEMBER 30, OCTOBER 2,
2000 1999
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
========== ==========
|
(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.
(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.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
September 30, October 2,
2000 1999
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
========== ==========
|
(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:
September 30, October 2,
2000 1999
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
======== ==========
|
(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,
$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:
September 30, October 2,
2000 1999
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
========== ==========
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7. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, October 2,
2000 1999
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
=========== ==========
|
(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
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:
Year Amount
2001 $ 5,073,592
2002 7,025,019
2003 7,654,180
2004 7,683,582
2005 2,084,487
-----------
$29,520,860
===========
|
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.
8. COMM