Ark
Restaurants
Corp.
2000 ANNUAL REPORT
THE COMPANY
Ark Restaurants Corp. (the “Company”) is a holding company which, through subsidiaries, owns
and operates 23 restaurants and manages one restaurant. Eleven 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, and one is located in 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 will provide without charge a copy of the Company’s Annual Report on Form 10-
K for the fiscal year ended September 30, 2000, including financial statements and schedules thereto, to
each of the Company’s shareholders of record on March 12, 2000 and each beneficial holder on that date,
upon receipt of a written request therefor mailed to the Company’s offices, 85 Fifth Avenue, New York,
New York 10003, attention: Treasurer.
March 7, 2001
Dear Shareholder:
The year 2000 resulted in a loss of $5.4 million before taxes and $3.5 million after taxes. A
principal reason was the $5.0 million write off of a joint venture with Sony to open four restaurants in a
Southfield, Michigan multiplex cinema operation. There are no excuses; but we are in the business of
opening new restaurants and some will fail or under perform. Over the years we have had good success
and the very high returns on capital of the winners more than compensates for the losers.
Other significant detractors from our results were (a) losses of $1.5 million in operating and
closing a restaurant at Tysons Corner, Virginia, (b) a $1.65 million settlement (inclusive of legal fees) of a
wage and hour litigation which the Company believes was associated with the unsuccessful union attempt
to organize our Las Vegas New York, New York facility and which the Company therefore regards as an
investment in preserving the strong economics of that operation, and (c) a $300,000 write off representing
the non-payment of a loan made to a restaurant for which we had an operating agreement.
With these items being absorbed in various categories of our audited income statement, we
thought it would be useful for shareholders to see a reconstruction of the year exclusive of these items as
follows:
Fiscal Year Ended September 30, 2000
Net Sales
Cost of Sales
Gross Restaurant Profit
Management Fee Income
Operating Expenses:
Payroll and payroll benefits
Occupancy
Other expenses
Income from Restaurant Operating Expenses (before depreciation)
General & Administrative Expenses
Other Income
Earnings Before Interest, Income Taxes & Depreciation
Depreciation
Interest, Net
Earnings Before Other Items
Other Items:
Labor settlement, inclusive of legal fees
America Virginia writeoff & operations
Southfield, Michigan writeoff
Accounts receivable writeoff
Loss Before Income Taxes
Income Tax Benefit
Net Loss, as reported
($,000)
$ 117,639
30,585
87,054
474
87,528
42,261
14,744
14,703
71,708
15,820
6,767
(437)
9,490
4,709
1,835
2,946
(1,644)
(1,474)
(4,988)
(280)
(8,386)
(5,440)
1,906
($3,534)
The earnings before interest, taxes and depreciation (EBIDT) of $9.5 million have not been
purged of certain items such as pre-opening losses at new and renovated restaurants which are a regular
part of our business but which are themselves one-time items. So, included in that $9.5 million EBIDT is
an EBIDT loss of $926,000 reflecting the conversion of B. Smith’s restaurant to Jack Rose and an EBIDT
loss of $767,000 for the openings of The Venetian and Desert Passage.
Same store sales for the year 2000 were up 3.6% and same store cash flows were strong. Many
of our restaurants had outstanding years. At New York, New York and The Stage Deli in Las Vegas,
profitability increased for the fourth consecutive year. Bryant Park continued to build its customer base
and private party business while achieving record profits. The same is true of our Sequoia operations in
New York and Washington, D.C. We expect the current year to be excellent.
Our unaudited results for the four months ended January 31, 2001 show same store sales up 4.0%,
EBIDT of $2,468,000 vs. $16,000 a year ago, and an operating loss of $398,000 vs. an operating loss of
$1,598,000 a year ago. As a highly seasonal business, we usually generate an operating loss through our
first four months followed by substantial cash flow and operating profit in the June and September
quarters. Our optimism for the remainder of the current year has a number of specific elements to it as
follows:
1.
Through January, pre-tax profitability at New York, New York was well ahead of last
year and we expect this trend to continue.
2.
The Venetian, Dessert Passage and Jack Rose are all expected to improve significantly in
the aggregate (a fuller description follows).
3.
In the four months ended January, the new 1800 seat circus in Bryant park and a 300 seat
tented addition to our restaurant for corporate events resulted in a substantial incremental profit. The tent
will be a permanent feature; we are hopeful that the circus will be an annual event as well.
4.
Corporate overhead which increased $1,041,000 in 2000 as we added new properties
should decrease significantly this year.
5.
6.
Our successful corporate sales and travel department is being expanded to Las Vegas.
We have new management and a new chef at our world famous Lutece restaurant.
This will all be partially offset by higher interest and depreciation expenses.
Below is a review of this past year’s new operations.
Venetian
In the first quarter of fiscal 2000 we opened three fast food operations at this new Las Vegas hotel
followed in the second quarter by two restaurants, Lutece Las Vegas and a Pan Asian concept Tsunami.
In the first quarter of fiscal 2001 we opened the V Bar, and later this year we will add an additional
restaurant. Although the Venetian Hotel experienced the usual early shakedown problems, it is now on
all cylinders and benefiting as the center of gravity for Las Vegas conventions. We have great confidence
in the Venetian management. In fiscal 2000, these operations reduced EBIDT by $212,000. Positive cash
flow was achieved in the September quarter and profitability was achieved in the December quarter of
fiscal 2001. The hotel is presently expanding its attractions with the addition of 1000 new rooms and the
building of annexes for the Guggenheim and Hermitage museums. This should attract substantial foot
traffic to this property.
2
Desert Passage
Desert Passage is a highly themed complex of 135 retail tenants encircling the new Aladdin Hotel
on Las Vegas Boulevard. We operate six foot court facilities as well as one restaurant. Desert Passage
opened in August 2000 and to date has been disappointing. In fiscal 2000 this operation reduced our
EBIDT by $555,000 and another poor year is in our forecast. The presently inadequate traffic flow at
Desert Passage must be increased to become successful. Better promotion, management, and cooperation
between the developer and tenants should accomplish this over time. Presently, we have reduced our
expenses and losses and seek opportunities to improve the sales line.
Jack Rose
Our partnership at B. Smith’s restaurants in New York and Washington was terminated in 2000.
As part of the financial settlement, we converted the New York asset to Jack Rose, a mid-priced steak
house. While this reduced EBIDT by $926,000, the current years operation should be vastly improved.
I wish to acknowledge our able and hard working team of executives, managers and chefs at our
restaurants, and the dedication of all employees to getting customers to come back for another meal. This
year the quality of our organization should be apparent in our income statement.
Sincerely,
Michael Weinstein, President
3
ARK RESTAURANTS CORP.
CORPORATE OFFICE
Michael Weinstein, President
Andrew Kuruc, Vice President-Chief Financial Officer
Vincent Pascal, Vice President-Operations
Walter Rauscher, Vice President-Corporate Sales & Catering
Robert Towers, Vice President-Chief Operating Officer
Paul Gordon, Vice President-Director of Las Vegas Operations
Nancy Alvarez, Assistant Controller
Kirsten Borstad, Director of Marketing
Kathryn Green, Controller-Las Vegas Operations
Marilyn Guy, Director of Human Resources
Colleen Hennigan, Director of Operations – Washington Division
John Oldweiler, Director of Purchasing
Jennifer Sutton, Operations and Financial Analysis
Joe Vazquez, Facilities Management
JOINT VENTURE ASSOCIATE
Andre Soltner, Lutece
EXECUTIVE CHEFS
Charles Brucculeri
Mike Kiernan
Chun Liao
Damien McEvoy
4
RESTAURANT GENERAL MANAGERS
Jennifer Baquierizo, El Rio Grande
Kyle Carnegie, Sequoia, DC
Liz Caro, The Grill Room & Columbus Bakery III
Jessica Fernandez, Columbus Bakery II
Tom Ferretti, Ernie’s
Brian Fountain, Gallagher’s, Las Vegas
Kelly Gallo, Jack Rose
Bender Ganiao, Thunder Grill, DC
Charles Gerbino, Las Vegas Employee Dining Facility
Gus Fuzman, Village Streets, Las Vegas
Bridgeen Hale, Metropolitan Café
John Hausdorf, Las Vegas Room Service
Halbert Hernandez, Canyon Road Grill
Lynn Huartson, America, NY
Debra Lomurno, Sequoia, NY
Joel Lopez, Tsunami Grill
John Maloughney, Lor-e-Lei
Mary Masa, Gonzalez Y Gonzalez, Las Vegas
Matt Mitchell, America & Center Café, DC
Christine Mundy, Columbus Bakery
Paul O’hearn, Stage Deli, Las Vegas
John Page, Las Vegas Catering
Bobbie Rihel, America, Las Vegas
Donna Simms, Bryant Park Grill
Robert Smythe, Lutece, Las Vegas
Ridgeley Trufant, Red
Anna Zaldarriaga, Gonzalez Y Gonzalez
RESTAURANT CHEFS
John Brady, Banquet, Las Vegas
Oscar Campos, Thunder Grill, DC
Henry Chung, Jack Rose
Ken Clark, Stage Deli, Las Vegas
Armando Cortes, The Grill Room
David Cross, America, Las Vegas
Arvy Dumbrys, Alakazam/Fat Anthony
David Feau, Lutece, NY
Michael Foo, America, DC
William Foo, America, NY
Rosalio Fuentes, Metropolitan Café
Carlos Garcia, Sequoia, NY
Luigi Guiga, Gallagher’s, Las Vegas
Raul Juarez, Ernies
Chun Liao, Sequoia, DC
David Mansen, Lor-e-li
John Miller, Las Vegas Employee Dining Facility
Virgilio Ortega, Columbus Bakery
Fermin Ramirez, El Rio Grande
Ruperto Ramirez, Canyon Road
Sergio Salazar, Gonzalez & Gonzalez, Las Vegas
Raul Santos, Red
Jose Trinidad, Tsunami Grill
Mariano Veliz, Gonzalez Y Gonzalez, NY
Gadi Weinreich, Bryant Park Grill
5
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.
September 30,
2000
October 2,
1999
Years Ended
October 3,
1998
September 27, September 28,
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
Other income expense, net
(1,396,758)
236,465
91,417
96,550
497,996
743,615
Income (loss) before
provision for income taxes
and cumulative effect of
accounting change
Income before
cumulative effect on
accounting change
(5,439,719)
7,070,339
7,680,882
2,882,263
1,241,611
NET INCOME (LOSS)
(3,723,130)
4,494,731
(3,533,617)
4,494,731
4,612,141
4,612,141
1,737,655
1,737,655
788,762
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
Facilities in operations,
end of year, including
managed
7.78
8.49
7.54
6.92
5.44
49
42
42
46
32
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30. The fiscal years ended
September 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 Café, 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 Café 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
7
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.
8
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 (whic h 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
9
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 ½%. 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 ½%. 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.
10
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.
11
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
Fourth Quarter
Calendar 1999
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar 2000
First Quarter
Second Quarter
Third Quarter
Dividends
High
11 (cid:31)
Low
8 ¼
10 ¼
11
11 (cid:31)
10 ¼
9
8 ¼
10
9 ½
9 (cid:31)
9 (cid:31)
8 ¼
6 c
6 ½
5 ¾
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 February 28, 2001, there were 71 holders of record of the Company’s Common Stock.
12
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281-1414
Tel: (212) 436 2000
Fax: (212) 436 5000
www.us.deloitte.com
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.
December 1, 2000
F-1
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable
Current portion of long-term receivables (Note 2)
Inventories
Deferred income taxes (Note 12)
Prepaid expenses and other current assets
Refundable and prepaid income taxes
Total current assets
LONG-TERM RECEIVABLES (Note 2)
ASSETS HELD FOR SALE (Note 3)
FIXED ASSETS - At cost:
Leasehold improvements
Furniture, fixtures and equipment
Leasehold improvements in progress
Less accumulated depreciation and amortization
INTANGIBLE ASSETS - Net (Note 4)
DEFERRED INCOME TAXES (Note 12)
OTHER ASSETS (Note 5)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
Accrued expenses and other current liabilities (Note 6)
Current maturities of capital lease obligations (Note 8)
Current maturities of long-term debt (Note 7)
Accrued income taxes (Note 12)
Total current liabilities
OBLIGATIONS UNDER CAPITAL LEASES (Note 8)
LONG-TERM DEBT - Net of current maturities (Notes 4 and 7)
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8)
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
Additional paid-in capital
Retained earnings
Less treasury stock, 2,067,637 and 1,927,037 shares
See notes to consolidated financial statements.
F-2
September 30,
2000
October 2,
1999
$
697,385
4,045,215
1,427,243
2,132,983
1,694,016
347,174
1,307,524
$
333,621
3,073,615
446,043
1,916,436
710,095
336,041
-
11,651,540
6,815,851
1,129,638
1,184,331
-
988,004
38,099,297
31,156,691
266,950
69,522,938
22,324,552
23,500,280
19,352,078
4,408,071
47,260,429
18,162,614
47,198,386
29,097,815
4,569,569
1,532,758
933,946
5,294,531
846,657
3,151,914
$
67,015,837
$
47,379,103
$
5,291,885
6,205,915
-
5,073,592
-
$
3,815,760
4,736,897
148,657
972,330
186,411
16,571,392
9,860,055
-
24,447,268
1,213,000
-
52,494
14,743,118
18,336,859
33,132,471
8,348,294
-
6,683,076
1,322,000
-
52,084
14,399,956
22,059,989
36,512,029
6,998,057
24,784,177
29,513,972
$
67,015,837
$
47,379,103
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NET SALES
COST OF SALES
Years Ended
September 30,
2000
October 2,
1999
October 3,
1998
$
119,212,486
$
110,800,913
$
117,398,453
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)
-
-
RESTAURANT OPERATING EXPENSES:
Payroll and payroll benefits
Occupancy
Depreciation and amortization
Other
83,682,277
82,368,864
87,272,550
43,063,142
15,309,525
4,885,286
17,356,386
39,254,439
13,492,931
4,062,849
12,654,868
41,171,865
13,788,992
3,998,272
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)
OTHER EXPENSE (INCOME):
Interest expense (Note 7)
Interest income
Other income (Note 13)
(4,042,961)
6,833,874
7,589,465
2,007,013
(171,977)
(438,278)
425,141
(225,996)
(435,610)
608,278
(209,577)
(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
See notes to consolidated financial statements.
F-3
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before cumulative effect of accounting change
Cumulative effect of accounting change
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of fixed assets
Amortization of intangibles
Gain on sale of restaurants
Write-off of joint venture advances
Impairment of assets held for sale
Write-off of accounts receivables
Operating lease deferred credit
Deferred income taxes
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses and other current assets
(Increase) in refundable and prepaid income taxes
(Increase) in other assets, net
Increase in accounts payable - trade
Increase (Decrease) in accrued income taxes
Increase (decrease) in accrued expenses and other current liabilities
Years Ended
September 30,
2000
October 2,
1999
October 3,
1998
$
(3,533,617)
(189,513)
$
4,494,731
-
$
4,612,141
-
4,334,092
551,194
(87,586)
4,988,000
810,769
279,394
(109,000)
(1,670,022)
(1,250,994)
(216,547)
(11,133)
(1,307,524)
(449,295)
1,476,125
(186,411)
1,469,018
3,330,568
732,281
(752,274)
-
-
-
(149,000)
382,624
376,692
33,710
155,088
-
(2,111,012)
252,692
(518,722)
811,130
3,432,104
566,168
(258,684)
-
-
-
(57,000)
57,164
(663,873)
(17,020)
(58,313)
-
(543,820)
2,818
291,263
(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
Additions to intangible assets
Advances to joint venture, net
Issuance of demand notes and long-term receivables
Payments received on demand notes and long-term receivables
Restaurant sales
Restaurant acquisitions
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt
Issuance of long-term debt
Exercise of stock options
Principal payment on capital lease obligations
Purchase of treasury stock
Net cash provided by (used in) financing activities
(22,262,509)
-
(3,297,000)
(93,530)
409,559
-
-
(6,989,405)
(384,880)
-
(95,611)
398,869
975,000
-
(1,713,847)
(229,524)
-
(81,580)
315,908
265,000
(2,735,000)
(25,243,480)
(6,096,027)
(4,179,043)
(3,154,580)
25,020,034
343,572
(148,495)
(1,350,237)
(5,659,226)
8,300,000
185,263
(229,781)
(4,228,162)
(8,012,164)
6,900,000
83,615
(273,507)
(1,522,496)
20,710,294
(1,631,906)
(2,824,552)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
363,764
333,621
(689,425)
1,023,046
300,763
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
Income taxes
See notes to consolidated financial statements.
F-4
$
2,245,013
$
526,382
$
608,278
$
1,113,395
$
2,690,443
$
2,699,651
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED SEPTEMBER 30, 2000, OCTOBER 2, 1999 AND OCTOBER 3, 1998
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Total
Shareholders’
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
Purchase of treasury stock
Tax benefit on exercise of options
Net income
10,000
-
-
-
100
-
-
-
64,900
-
18,615
-
-
-
-
4,612,141
-
(1,522,496)
-
-
65,000
(1,522,496)
18,615
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
Purchase of treasury stock
Tax benefit on exercise of options
Net income
20,500
-
-
-
205
-
-
-
163,795
-
21,263
-
-
-
-
4,494,731
-
(4,228,162)
-
-
164,000
(4,228,162)
21,263
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
Purchase of treasury stock
Tax benefit on exercise of options
Net Loss
41,000
-
-
-
410
-
-
-
327,590
-
15,572
-
-
-
-
(3,723,130)
-
(1,350,237)
-
-
328,000
(1,350,237)
15,572
(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.
F-5
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
perations; 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
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).
F-6
Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market, and consist of
food and beverages, merchandise for sale and other supplies.
Fixed Assets - Leasehold improvements and furniture, fixtures and equipment are stated at cost.
Depreciation of furniture, fixtures and equipment (including equipment under capital leases) is
computed using the straight-line method over the estimated useful lives of the respective assets (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
F-7
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.
F-8
2. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
Note receivable due March 2001 (a)
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)
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)
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)
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)
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)
Note receivable secured by fixed assets and lease at a
restaurant at 7.0% interest; due in monthly installments
through June 2006 (f)
Advances for construction and working capital, at one of
the Company’s managed locations, at 15% interest; due
in monthly installments through December 2000
Others
Less current portion
September 30,
2000
October 2,
1999
$
1,000,000
$
-
460,149
514,706
72,333
112,571
-
126,796
553,734
445,118
221,239
244,565
228,315
-
21,111
-
98,110
88,508
2,556,881
1,630,374
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.
F-9
(c)
(d)
(e)
(f)
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.
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).
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.
In June 2000, the Company terminated the management of a restaurant in New York City.
The Company received cash of $164,000 and notes totaling $234,000 as consideration for
its then outstanding working capital loans. The Company recognized a loss of $280,000 on
the termination.
The carrying value of the Company’s long-term receivables approximates its current aggregate fair
value.
3. ASSETS HELD FOR SALE
The Company was actively pursuing the sale of one restaurant during fiscal 2000, and accordingly had
reclassified the net fixed assets ($759,190) and inventories ($51,579) as assets held for sale. The
Company continuously assessed the carrying value of this restaurant in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of. The Company
determined that it has been unsuccessful in its efforts to sell this restaurant after two potential sales
were abandoned by the buyers. The Company determined that the restaurant value was impaired
based upon the future undiscounted anticipated cash flows. The Company assessed the discounted
cash flow value of the property and it recorded an impairment charge of $810,769.
At October 2, 1999, the Company was actively pursuing the sale of one restaurant and accordingly
reclassified the net fixed assets ($935,097) and inventories($52,907) as assets held for sale.
F-10
4.
INTANGIBLE ASSETS
Intangible assets consist of the following:
Goodwill (a)
Purchased leasehold rights (b)
Noncompete agreements and other (c)
Organization costs (d)
Less accumulated amortization
September 30,
2000
October 2,
1999
$
6,222,877
750,740
790,000
-
7,763,617
3,194,048
$
6,222,877
750,740
790,000
789,521
8,553,138
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:
Deposits
Deferred financing fees
Investments in and advances to affiliates (a)
September 30,
2000
October 2,
1999
$
276,484
171,250
486,212
$
313,142
144,195
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,
F-11
$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:
Sales tax payable
Accrued wages and payroll related costs
Customer advance deposits
Accrued and other liabilities
Litigation accrual (Note 8)
7. LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
2000
October 2,
1999
$
877,765
999,115
1,175,000
1,854,035
1,300,000
$
782,365
877,758
1,083,000
1,993,774
-
$
6,205,915
$
4,736,897
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
September 30,
2000
October 2,
1999
Notes issued in connection with refinancing of restaurant
equipment, at 8.75%, payable in monthly installments through
January 2002 (b)
Notes issued in connection with refinancing of restaurant
equipment, at 8.80%, payable in monthly installments through
May 2005 (c)
Note issued in connection with acquisition of restaurant site,
at 7.25%, payable in monthly installments through
January 1, 2000
Less current maturities
885,456
1,439,171
1,485,404
-
-
366,235
29,520,860
5,073,592
7,655,406
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
F-12
development and construction of new restaurants and for working capital purposes at the
Company’s existing restaurants. Outstanding loans bear interest at ½% 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 1½% 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
2001
2002
2003
2004
2005
Amount
$
5,073,592
7,025,019
7,654,180
7,683,582
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.
F-13
The carrying value of the Company’s long-term debt approximates its current aggregate fair value.
8. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases its restaurants, bar facilities, and administrative headquarters through its
subsidiaries under terms expiring at various dates through 2029. Most of the leases provide for the
payment of base rents plus real estate taxes, insurance and other expenses and, in certain instances, for
the payment of a percentage of the restaurants’ sales in excess of stipulated amounts at such facility.
As of September 30, 2000, future minimum lease payments, net of sublease rentals, under
noncancelable leases are as follows:
Year
2001
2002
2003
2004
2005
Thereafter
Total minimum payments
Operating
Leases
$
8,010,226
8,064,014
8,628,534
8,092,052
7,205,015
26,269,515
$
66,269,356
In connection with the leases included in the table above, the Company obtained and delivered
irrevocable letters of credit in the aggregate amount of $1,485,000 as security deposits under such
leases.
Rent expense was $10,782,991, $9,638,551 and $9,940,639 during the fiscal years ended September
30, 2000, October 2, 1999 and October 3, 1998, respectively. Rent expense for the fiscal years ended
September 30, 2000, October 2, 1999 and October 3, 1998 includes approximately $109,000,
$149,000 and, $57,000 operating lease deferred credits, representing the difference between rent
expense recognized on a straight-line basis and actual amounts currently payable. Contingent rentals,
included in rent expense, were $3,470,155, $2,799,585 and $2,769,721 for the fiscal years ended
September 30, 2000, October 2, 1999 and October 3, 1998, respectively.
Legal Proceedings - In the ordinary course of its business, the Company is a party to various lawsuits
arising from accidents at its restaurants and workmen’s compensation claims, which are generally
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. §1981. The dispute with the plaintiff was settled for approximately $15,000.
F-14
Counsel for plaintiff is now seeking attorneys fees in the amount of approximately $130,000. A
magistrate denied the request and this issue is on appeal.
A lawsuit was commenced against the Company in October 1997 in the District Court for the
Southern District of New York by 44 present and former employees alleging various violations of
Federal wage and hour laws. The complaint seeks an injunction against further violations of the labor
laws and payment of unpaid minimum wages, overtime and other allegedly required amounts,
liquidated damages, penalties and attorneys fees. The Company believes that there were certain
violations of overtime requirements, which have today been largely corrected, for which the Company
will have liability. The period of time in which affected employees could “opt-in” to the lawsuit
asserting similar violations has expired and a total of 214 individuals have so elected. Discovery in this
action has not been completed. The parties are currently discussing settlement of this matter. Based
upon the settlement discussions, in the fourth quarter of fiscal 2000, the Company recorded a charge
of $1,300,000 in connection with this matter.
In addition, several unfair labor practice charges were filed against the Company in 1997 and 1998
with the National Labor Relations Board with respect to the Company’s Las Vegas subsidiary. The
1997 charges were consolidated for a hearing which was conducted in October 1997. At issue was
whether the Company unlawfully terminated nine employees and disciplined six other employees
allegedly in retaliation for their union activities. An Administrative Law Judge (ALJ) found that six
employees were terminated unlawfully and three were discharged for valid reasons. Concerning the
allegedly retaliatory discipline, the ALJ found that the Company acted legally in disciplining four
employees but not lawfully with respect to two employees. The Company has appealed the adverse
rulings of the ALJ to the National Labor Relations Board in Washington, D.C., and is waiting for a
decision. The Company believes that there are reasonable grounds for obtaining a reversal of the
unfavorable findings by the ALJ and does not believe that an adverse outcome in this proceeding will
have a material adverse effect upon the Company’s financial condition or operations.
In May 1999, in the second case, the ALJ issued a favorable decision involving unfair labor practice
charges filed in 1998 against the Company before the National Labor Relations Board with respect to
the Company’s Las Vegas subsidiary. The complaint alleged that four employees were terminated and
three other employees disciplined because of their union activities. The ALJ found that none of the
employees were terminated or disciplined for inappropriate reasons. The ALJ found two violations of
management communications rules for which non-economic remedies were proposed. This case,
involving the 1998 charges, was closed in September 1999.
The Company does not believe that an adverse outcome in any of the unfair labor practice charges will
have a material adverse effect upon the Company’s financial condition or operations.
9. SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan - In August 1998, the Company authorized the repurchase of up to
500,000 shares of the Company’s outstanding common stock. In April 1999, the Company authorized
the repurchase of an additional 300,000 shares of the Company’s outstanding common stock. For the
years ended September 30, 2000 October 2, 1999 and October 3, 1998, the Company repurchased
140,600, 422,700 and 159,000 shares at a total cost of $1,350,237, $4,228,162 and $1,522,496,
respectively.
F-15
10. STOCK OPTIONS
On October 15, 1985, the Company adopted a Stock Option Plan (the “Plan”) pursuant to which the
Company reserved for issuance an aggregate of 175,000 shares of common stock. In May 1991 and
March 1994, the Company amended such Plan to increase the number of shares issuable under the
Plan to 350,000 and 447,650, respectively. In March 1996, the Company adopted a second plan and
reserved for issuance an additional 135,000 shares. In March 1997, the Company amended this plan
to increase the number of shares included under the plan to 270,000. Options granted under the Plans
to key employees are exercisable at prices at least equal to the fair market value of such stock on the
dates the options were granted. The options expire five years after the date of grant and are generally
exercisable as to 25% of the shares commencing on the first anniversary of the date of grant and as to
an additional 25% commencing on each of the second, third and fourth anniversaries of the date of
grant.
Additional information follows:
2000
1999
1998
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
Outstanding, beginning of year
488,500
$
10.65
311,500
$
10.86
227,500
$
10.38
Options:
Granted
Exercised
Canceled or expired
-
(41,000)
(104,000)
Outstanding, end of year (a)
343,500
-
8.00
11.32
10.76
214,000
(20,500)
(16,500)
488,500
10.00
8.00
9.24
10.65
100,000
(10,000)
(6,000)
311,500
11.38
6.50
8.63
10.86
Price range, outstanding shares
$9.50 - $12.00
$8.00 - $12.00
$8.00 - $12.00
Weighted average years
2.62 Years
Shares available for future grant
126,500
3.3 years
22,500
3.2 years
20,000
Options exercisable (a)
157,125
11.24
178,917
10.78
117,583
10.13
(a) Options become exercisable at various times until expiration dates ranging from January 2002
through April 2004.
Statement of Financial Accountings Standards No. 123, Accounting for Stock-Based Compensation
(“SFAS No. 123”), requires the Company to disclose pro forma net income and pro forma earnings
per share information for employee stock option grants to employees as if the fair-value method
defined in SFAS No. 123 had been applied. The fair value of each stock-option grant is estimated on
the date of grant using the Black-Scholes option pricing. The assumptions for fiscal 1999 include:
risk-free interest rate of 6.25%; no dividend yield; expected life of four years; and expected volatility of
38%. The assumptions for fiscal 1998 include; risk free interest rate of 5.5%; no dividend yield;
expected life of four years; and expected volatility of 75%. There were no options granted during the
fiscal year ended September 30, 2000.
F-16
The pro forma impact was as follows:
Net earnings as reported
Net earnings - pro forma
Years Ended
September 30,
2000
October 2,
1999
October 3,
1998
$
(3,533,617)
(3,768,272)
$
4,494,731
4,307,357
$
4,612,141
4,464,576
Earnings per share as reported - basic
Earnings per share as reported - diluted
$
(1.11)
(1.11)
$
1.30
1.29
$
1.21
1.20
Earnings per share pro forma - basic
Earnings per share pro forma - diluted
(1.18)
(1.18)
1.24
1.24
1.17
1.16
The exercise of nonqualified stock options in the fiscal years ended September 30, 2000, October 2,
1999, and October 3, 1998 resulted in income tax benefits of $15,572, $21,263 and $18,615,
respectively, which were credited to additional paid-in capital. The income tax benefits result from the
difference between the market price on the exercise date and the option price.
11. MANAGEMENT FEE INCOME
As of September 30, 2000, the Company provides management services to four restaurants owned by
outside parties. In accordance with the contractual arrangements, the Company earns fixed fees and
management fees based on restaurant sales and operating profits as defined by the various management
agreements.
Restaurants managed had net sales of $8,867,336, $9,803,693 and $12,738,639 during the
management periods within the years ended September 30, 2000, October 2, 1999 and October 3,
1998, respectively, which are not included in consolidated net sales of the Company.
12. INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on a consolidated basis and
state and local income taxes calculated by each subsidiary on a nonconsolidated basis. For New York
State and City income tax purposes, the losses incurred by a subsidiary may only be used to offset that
subsidiary’s income.
F-17
The provision (benefit) for income taxes consists of the following:
Current provision (benefit):
Federal
State and local
Deferred provision (benefit):
Federal
State and local
Years Ended
September 30,
2000
October 2,
1999
October 3,
1998
$
(1,129,390)
782,310
$
1,298,451
894,533
$
1,892,997
1,117,363
(347,080)
2,192,984
3,010,360
(1,285,920)
(273,102)
(1,559,022)
349,299
33,325
382,624
100,486
(42,105)
58,381
$
(1,906,102)
$
2,575,608
$
3,068,741
The provision (benefit) for income taxes differs from the amount computed by applying the Federal
statutory rate due to the following:
Provision (benefit) for Federal
income taxes (34%)
State and local income taxes net of Federal
tax benefit
Amortization of goodwill
Tax credits
Other
Years Ended
September 30,
2000
October 2,
1999
October 3,
1998
$
(1,849,000)
$
2,404,000
$
2,612,000
336,000
25,000
612,000
26,000
710,000
26,000
(503,000)
(512,000)
(506,000)
84,898
45,608
226,741
$
(1,906,102)
$
2,575,608
$
3,068,741
F-18
Deferred tax assets or liabilities are established for (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss carryforwards. The tax effects of items comprising the Company’s
net deferred tax asset are as follows:
Deferred tax assets:
Operating loss carryforwards
Operating lease deferred credits
Carryforward tax credits
Depreciation and amortization
Deferred gains
Valuation allowance
Asset impairment
Litigation accrual
September 30,
2000
October 2,
1999
$
1,349,747
522,274
1,738,555
51,965
(235,432)
(917,998)
275,663
442,000
$
1,035,396
570,370
976,725
114,662
(270,112)
(870,289)
-
-
$
3,226,774
$
1,556,752
A valuation allowance for deferred taxes is required if, based on the evidence, it is more likely than not
that some of the deferred tax assets will not be realized. The Company believes that uncertainty exists
with respect to future realization of certain operating loss carryforwards and operating lease deferred
credits. Therefore, the Company provided a valuation allowance of $917,998 at September 30, 2000
and $870,289 at October 2, 1999. The Company has state operating loss carryforwards of
$14,196,000 and local operating loss carryforwards of $9,549,734, which expire in the years 2002
through 2015.
During the fiscal year ended September 30, 2000, the Company and the Internal Revenue Service
finalized the adjustments to the Company’s Federal income tax returns for the fiscal years ended
September 28, 1991 through October 1, 1994. The final adjustments primarily relate to (i) legal and
accounting expenses incurred in connection with new or acquired restaurants that the Internal Revenue
Service asserts should have been capitalized and amortized rather than currently expensed and (ii)
travel and meal expenses for which the Internal Revenue Service asserts the Company did not comply
with certain record keeping requirements or the Internal Revenue Code. The settlement did not have a
material effect on the Company’s financial condition. The Internal Revenue Service is currently
examining the Company’s returns for the fiscal year ended September 30, 1995 through September 27,
1997. The Company does not expect the results from such examination to have a material effect on
the Company’s financial condition.
F-19
13. OTHER INCOME
Other income consists of the following:
Purchasing service fees
Sales of logo T-shirts and hats
Other
Years Ended
September 30, October 2,
2000
1999
October 3,
1998
$
65,535
179,562
193,181
$
88,061
133,819
213,730
$
124,455
160,596
205,067
$
438,278
$
435,610
$
490,118
14. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, Financial Accounting Standards Board
Statement No. 128, “Earnings per Share,” which established new standards for computing and
presenting earnings per share. The Company now discloses “Basic Earnings per Share,” which is
based upon the weighted average number of shares of common stock outstanding during each period
and “Diluted Earnings per Share,” which requires the Company to include common stock equivalents
consisting of dilutive stock options and warrants. The Company also retroactively applied the new
standard to all periods presented.
There were no dilutive stock options and warrants for the fiscal year ended September 30, 2000. A
reconciliation of the numerators and denominators of the basic and diluted per share computations for
the fiscal years ended October 2, 1999 and October 3, 1998 follow.
Year ended October 2, 1999:
Basic EPS
Stock options and warrants
Diluted EPS
Year ended October 3, 1998:
Basic EPS
Stock options and warrants
Diluted EPS
Income
(Numerator)
Shares
Per-Share
(Denominator) Amount
$
4,494,731
-
4,494,731
3,460,865
15,115
3,475,980
4,612,141
$
-
4,612,141
3,826,255
25,764
3,852,019
$
1.30
0.01
1.29
$
1.21
0.01
1.20
F-20
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
2000
Net sales
January 1,
2000
Fiscal Quarters Ended
July1,
2000
April1,
2000
September 30,
2000
$
26,956,508
$
25,765,386
$
33,809,752
$
32,680,840
Gross restaurant profit
19,896,289
18,953,108
25,217,317
24,129,669
Cumulative effect of
accounting change
(189,513)
-
-
-
Net income (loss)
91,656
(4,976,492)
1,772,442
(610,736)
Net income (loss) per
share - basic and diluted
$
0.03
$
(1.56)
$
0.56
$
(0.19)
1999
Net sales
Gross restaurant profit
Net income (loss)
Net income (loss) per share -
basic and diluted
1998
Net sales
January 2,
1999
April 3,
1999
July 3,
1999
October 2,
1999
Fiscal Quarters Ended
$
26,933,489
$
23,344,731
$
31,563,976
$
28,958,717
19,823,052
16,983,679
23,408,382
21,284,497
1,025,576
(156,178)
2,115,333
1,510,000
$
0.28
$
(0.04)
$
0.63
$
0.45
December 27,
1997
March 28,
1998
June 27,
1998
October 3,
1998
Fiscal Quarters Ended
$
26,940,384
$
25,198,012
$
33,029,512
$
32,230,545
Gross restaurant profit
19,692,165
18,345,554
24,432,866
23,662,166
Net income (loss)
727,441
(254,154)
2,428,676
1,710,178
Net income (loss) per share
basic and diluted
16. SUBSEQUENT EVENTS
$
0.19
$
(0.07)
$
0.63
$
0.45
Amendment to Credit Agreement
In November 2000, the Company amended its credit agreement with its main bank, Bank Leumi USA.
The new amendment allows the Company to borrow up to $28,500,000 for use in construction of and
F-21
acquisition of new restaurants and for working capital purposes at the Company’s existing restaurants.
The Company is required to repay any borrowings which exceed $26,000,000 on June 30, 2001,
$23,000,000 on September 30, 2001, and $22,000,000 on December 27, 2001. On December 27,
2001, the revolving loans will be converted into term loans payable over 36 months. Outstanding loans
bear interest at prime + ½%. The agreement also includes a five year $1,500,000 Letter of Credit
Facility for use at the Company’s restaurants in lieu of lease security deposits.
Default on Note Receivable
In November 2000, the buyer of a restaurant from the Company defaulted on a promissory note to the
company in the amount of $220,000 issued as part of the purchase price of the restaurant. The buyer
subsequently filed for bankruptcy and the Company is now seeking to recover the restaurant premises
and assets. The Company believes that it will recover the amount due on the note.
Equipment Refinancing
In November 2000, the Company entered into a sale and leaseback agreement with GE Capital for
$1,652,000 to refinance the purchase of various restaurant equipment in a hotel and casino in Las
Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable in 48 equal monthly
installments of $31,785 until maturity in November 2004 at which time the Company has an option to
purchase the equipment for $519,440. Alternatively, the Company can extend the lease for an
additional 12 months at the same monthly payment until maturity in November 2005 and repurchase
the equipment at such time for $165,242.
* * * * * *
F-22
CORPORATE INFORMATION
BOARD OF DIRECTORS
Ernest Bogen
Chairman
Michael Weinstein
President
Paul Gordon
Vice President – Director of Las Vegas Operations
Andrew Kuruc
Vice President – Chief Financial Officer
Vincent Pascal
Vice President - Operations
Robert Towers
Vice President – Chief Operating Officer
Donald D. Shack
Shack & Siegel, P.C.
Jay Galin
Chairman, G+G Retail, Inc.
Bruce Lewin
Owner, Bruce R. Lewin Gallery
EXECUTIVE OFFICE
AUDITORS
85 Fifth Avenue
New York, N.Y. 10003
(212) 206-8800
Deloitte & Touche
Two World Financial Center
New York, N.Y. 10281
TRANSFER AGENT
GENERAL COUNSEL
Continental Stock Transfer &
Trust Company
2 Broadway
New York, N.Y. 10001
Shack & Siegel, P.C.
530 Fifth Avenue
New York, N.Y. 10036
Ark Restaurants Corp.
85 FIFTH AVENUE
NEW YORK, N.Y. 10003-3019
(212) 206-8800