Ark
Restaurants
Corp.
2016 ANNUAL REPORT
The Company
We are a New York corporation formed in 1983. As of the fiscal year ended October 1, 2016, we owned
and/or operated 21 restaurants and bars, 19 fast food concepts and catering operations through our
subsidiaries. Initially our facilities were located only in New York City. As of the fiscal year ended October
1, 2016, six of our restaurant and bar facilities are located in New York City, two are located in Washington,
D.C., five are located in Las Vegas, Nevada, three are located in Atlantic City, New Jersey, one is located at
the Foxwoods Resort Casino in Ledyard, Connecticut, one is located in the Faneuil Hall Marketplace in
Boston, Massachusetts and three are located on the east coast of Florida.
In addition to the shift from a Manhattan-based operation to a multi-city operation, the nature of the facilities
operated by us has shifted from smaller, neighborhood restaurants to larger, destination properties intended to
benefit from high patron traffic attributable to the uniqueness of the location. Most of our properties which
have been opened in recent years are of the latter description. As of the fiscal year ended October 1, 2016,
these include the operations at the 12 fast food facilities in Tampa, Florida and Hollywood, Florida (2004);
the Gallagher’s Steakhouse and Gallagher’s Burger Bar in the Resorts Atlantic City Hotel and Casino in
Atlantic City, New Jersey (2005); The Grill at Two Trees at the Foxwoods Resort Casino in Ledyard,
Connecticut (2006); Durgin Park Restaurant and the Black Horse Tavern in the Faneuil Hall Marketplace in
Boston, Massachusetts (2007); Yolos at the Planet Hollywood Resort and Casino in Las Vegas, Nevada
(2007); Robert at the Museum of Arts & Design at Columbus Circle in Manhattan (2010); Broadway Burger
Bar and Grill at the New York New York Hotel and Casino in Las Vegas, Nevada (2011); Clyde Frazier’s
Wine and Dine in Manhattan (2012); Broadway Burger Bar and Grill in the Quarter at the Tropicana Hotel
and Casino in Atlantic City, New Jersey (2013), The Rustic Inn in Dania Beach, Florida (2014), The Rustic
Inn in Jupiter, Florida (2015) and Shuckers in Jensen Beach, Florida (2016).
The names and themes of each of our restaurants are different except for our two Gallagher’s Steakhouse
restaurants, two Broadway Burger Bar and Grill restaurants and two Rustic Inn restaurants. The menus in
our restaurants are extensive, offering a wide variety of high-quality foods at generally moderate prices. The
atmosphere at many of the restaurants is lively and extremely casual. Most of the restaurants have separate
bar areas, are open seven days a week and most serve lunch as well as dinner. A majority of our net sales are
derived from dinner as opposed to lunch service.
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.
We will provide, without charge, a copy of our Annual Report on Form 10-K for the fiscal year ended
October 1, 2016, including financial statements, exhibits and schedules thereto, to each of our shareholders of
record on February 24, 2017 and each beneficial holder on that date, upon receipt of a written request
therefore mailed to our offices, 85 Fifth Avenue, New York, NY 10003 Attention: Treasurer.
Shareholders, Associates and Friends of Ark:
We are in the business of owning and operating restaurants. The majority of our restaurants were conceived
and built by us under lease agreements with developers and landlords. But we also are active in purchasing
restaurants from owners who are looking to cash out. As I have written in past letters, individual non-branded
restaurants with limited seating are generally a romantic notion rather than a driver of operational profits. Our
business focuses on larger venues with individual sites such as Bryant Park in NYC and Sequoia in
Washington, D.C., each having capacities for 1000 seats. These larger facilities if successful can deliver
outsized revenue and more productive net income. Also while the majority of our restaurants have different
trade names we have established an Ark “brand” with developers and landlords who recognize that we are
exceptional operators for these larger facilities. As we move our business forward our portfolio of restaurants
will reflect this “brand” thinking as we endeavor to accrue value to shareholders. There are exceptions.
Sometimes we find a smaller gem like Shuckers in Jensen Beach, Florida which we purchased last year or our
own recently constructed Southwest Porch in NYC where revenues are significant despite their smaller
footprints. Hopefully there will be more of these in our future as well.
We do not view our performance in terms of quarter to quarter or year to year. I know this will be nominated
by some as defensive in light of our numbers for fiscal 2016. But I believe our recent portfolio shifts are
significant in their potential to deliver a better bottom line despite the encroachment of legislation as
government is taking the place of unions in its pursuit of higher minimum wage for tipped employees. I
discussed this in last year’s letter. The primary complaint is not with non-tipped hourly employees. Our
difficulty is that our tipped employees average $30 per hour or more in gratuities and in a demonstration of
convoluted reasoning government does not recognize these gratuities as pay which in my view should be
included toward the minimum wage requirement. Indeed we are required by government to track these tips
and report them on our employees’ W-2 forms. We are sympathetic to tipped employees who do not have the
good fortune of being employed in restaurants where gratuities exceed the minimum wage and rely on a
higher minimum standard to secure their economic wellbeing. But this is not the case with our tipped
employees. Government has enacted one shoe fits all legislation which does not reflect the economic reality
of our industry and as a result has disrupted the bottom lines of most operators. This past year was the first
year in which the newly legislated minimum wage was in effect for tipped employees and our bottom line was
significantly disturbed.
Another disruption to our corporate EBITDA has been the inflation in rents where we operate. Many of our
leases were signed twenty years ago. We have lost previously thought to be reliable operating profits where
we were unable to extend expiring leases. We try to invest capital and management time in economic
equations that give us a respectable return if we hit a double and at the least doesn’t send us off the field
defeated if we only get to first. New rent structures for leases and minimum wage legislation raises the bar
for difficulty.
We are confident in our business and may be at a significant inflexion point. We have absorbed the first body
blows of the legislative phase-in of minimum wage (there are more bump-ups baked into the legislation for
future years) and while we do not see price elasticity in our menus we have found new sources of revenue to
help us offset a portion of this payroll increase. Further we do not have significant leases expiring for a few
years. Our Sequoia lease which was due to term out in late 2017 has been renegotiated and extended for an
additional 15 year term.
The most important changes in our portfolio occurred in the last week of November 2016 which falls in the
first quarter of our current 2017 fiscal year. We purchased the two Original Oyster House Seafood restaurants
in Alabama, one in Gulf Shores and one on the Causeway connecting Gulf Shores to Mobile. In both cases we
purchased the land as well as the operation. This purchase along with past purchases of the land and
operations of the Rustic Inn Fort Lauderdale, Florida and Shuckers in Jensen Beach, Florida is significant in
that more than 20% of our projected ongoing restaurant operating income will come from properties where
we are our own landlord. We intend to pursue more of these. Also in November 2016 we exercised a right of
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first refusal clause in our lease for our Rustic Inn Jupiter, Florida and then for $3 million more than our
purchase price sold the land and building. In the 2016 fiscal year the Jupiter Rustic Inn had approximately
$500,000 in operating losses. While we were of the opinion that this restaurant was moving toward eventual
profitability the transaction was too important to our balance sheet to turn away. As part of our agreement
with the purchaser we will continue to operate the restaurant through April 2017.
By the time you receive this annual report our first quarter for the 2017 fiscal year which ended December 31,
2016 will be public. This was a very positive quarter with strong comparative sales. The Company was far
more productive at the bottom line then in the prior year’s quarter and also bested the relatively good
performance of the fiscal 2015 December quarter. A bullish reading is that we are doing something right for
our customers. With tail winds of positive comps our current portfolio survived minimum wage increases and
with the appropriate allocation of capital was able to replace lost operating income from expired leases.
Hibernating in the background and perhaps little noticed is our investment in an LLC which is the majority
owner and operator of the Meadowlands Race Track in northern New Jersey. Our strategy when we made this
investment was our strong belief in the desperate financial condition of the State of New Jersey that would
require the expansion of gaming to the north of the state. Presently all gaming is restricted to Atlantic City
which is a shrinking footprint both in the number of casinos and the tax on casino revenue collected by the
state. A referendum to expand gaming to the north was on this past November’s ballot and failed. This was
not unexpected. We were encouraged that the legislative branch and the Governor of New Jersey were able to
agree to a referendum although we were disappointed in its lack of specificity. The referendum was non-
committal as to site selection and did little to assist voters in understanding the potential tax revenue that
could be generated or how the funds would be utilized. This was easy fodder for a negative media campaign
by opponents of casino expansion which included not only Atlantic City licensed casinos but also casinos in
bordering states whose revenue would be negatively impacted by the addition of a casino in northern New
Jersey. The failure of this initial referendum does not dissuade our continued confidence in the eventuality of
a casino license in the north. We remain confident that we have the most persuasive site. Importantly, in
addition to holding an interest in the LLC, if the LLC is successful in obtaining a gaming license we retain an
exclusive to all casino food and beverage operations with the exception for a Hard Rock Café (Hard Rock is a
partner in the venture ).
To our shareholders thank you for your trust and support of management. To all of our employees, you are the
most important link to customers who return to our restaurants because you care that they receive value from
their experience. You work hard, you are loyal and honest and you give each day your best. We are grateful.
Sincerely,
Michael Weinstein
Chairman and Chief Executive Officer
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ARK RESTAURANTS CORP.
Corporate Office
Michael Weinstein, Chairman and Chief Executive Officer
Robert Stewart, President, Chief Financial Officer and Treasurer
Vincent Pascal, Senior Vice President and Chief Operating Officer
Paul Gordon, Senior Vice President-Director of Las Vegas Operations
Walter Rauscher, Vice President-Corporate Sales & Catering
Jeff Isaacson, Vice President – Beverage Operations
Nancy Alvarez, Controller
Marilyn Guy, Director of Human Resources
Donna McCarthy, Director of Operations – Atlantic City
Andrea O’Brien, Director of Tour and Travel
John Oldweiler, Director of Purchasing
Luis Gomes, Director of Purchasing – Las Vegas Operations
Linda Clous, Director of Facilities Management
Evyette Ortiz, Director of Marketing
Veronica Mijelshon, Director of Architecture and Design
Sonal Shah, General Counsel and Secretary
Teresita Mendoza, Controller – Las Vegas Operations
Welner Villatoro, Director of Maintenance – Las Vegas Operations
Nicole Calix Coy, Director of Human Resources – Las Vegas Operations
Executive Chefs
Damien McEvoy, Las Vegas
Sergio Soto, Atlantic City, NJ
Vico Ortega, New York, NY
Restaurant General Managers-New York
Donna Simms, Director of Bryant Park Operations
Dianne Ashe-Giovannone, El Rio Grande
Ana Harris, Robert
Bridgeen Rice, Clyde Frazier’s Wine and Dine
Restaurant General Managers-Washington D.C.
Gregory Thompson, Thunder Grill
Maurizio Reyes, Sequoia
Restaurant General Manager-Atlantic City, NJ
John English, Gallagher’s Steakhouse and Gallagher’s Burger Bar
Restaurant General Managers-Las Vegas
John Hausdorf, Las Vegas Room Service
Geri Ohta, Director of Sales and Catering
Kelly Rosas, America
Mary Massa, Gonzalez y Gonzalez
Shepherd McFarlane, Gallagher’s Steakhouse
Ivonne Escobedo, Village Streets
Jeff Stein, Broadway Burger Bar & Grill
Staci Green, Yolos Mexican Grill
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Restaurant General Manager-Boston
Patricia Reyes, Durgin-Park
Restaurant General Managers-Florida
Darvin Prats, Tampa Food Court
Edgar Gonzalez-Pratt. Hollywood Food Court
Michael Diascro, The Rustic Inn- Ft. Lauderdale
Bender Gamiao, The Rustic Inn- Jupiter
Robert Rae, Shuckers
Restaurant General Manager-Foxwoods
Matilda Santana, Manager of Connecticut Operations
Keri House, The Grill at Two Trees
Restaurant Chefs-New York
Fermin Ramirez, El Rio Grande
Gadi Weinreich, Bryant Park Grill
Louisa Fernandez, Robert
Armando Cortes, Clyde Frazier’s Wine and Dine
Restaurant Chefs-Washington D.C.
Michael Foo, Thunder Grill
Fanor Baldarrama, Sequoia
Restaurant Chefs-Las Vegas
Jerome Lingle, America
Bernard Camat, Gallagher’s Steakhouse
Richard Harris, Yolos Mexican Grill
Steve Shoun, Employee Dining Room
Sergio Salazar, Gonzalez y Gonzalez
Justin Vega, Ark Banquets
Brandon Greenwood, Broadway Burger Bar & Grill
Restaurant Chef-Boston
Roberto Reyes, Durgin-Park
Restaurant Chefs-Florida
Artemio Espinoza, Hollywood Food Court
Nolberto Bernal, Tampa Food Court
Bender Gamiao, The Rustic Inn- Jupiter FL
Ralph Formisano, Shuckers
Restaurant Chef-Foxwoods
Rosalio Fuentes, The Grill at Two Trees
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
As of October 1, 2016, the Company owned and operated 21 restaurants and bars, 19 fast food concepts and
catering operations, exclusively in the United States, that have similar economic characteristics, nature of
products and service, class of customer and distribution methods. The Company believes it meets the criteria
for aggregating its operating segments into a single reporting segment in accordance with applicable
accounting guidance. The Consolidated Statements of Income for the year ended October 1, 2016 includes
revenues and operating income of approximately $4,763,000 and $523,000, respectively, related to Shuckers
in Jensen Beach, FL, which was acquired on October 22, 2015.
Accounting Period
Our fiscal year ends on the Saturday nearest September 30. We report fiscal years under a 52/53-week
format. This reporting method is used by many companies in the hospitality industry and is meant to improve
year-to-year comparisons of operating results. Under this method, certain years will contain 53 weeks. The
fiscal year ended October 1, 2016 included 52 weeks and the fiscal year ended October 3, 2015 included 53
weeks.
Seasonality
The Company has substantial fixed costs that do not decline proportionally with sales. The first and second
fiscal quarters, which include the winter months, usually reflect lower customer traffic than in the third and
fourth fiscal quarters. However, sales in the third and fourth fiscal quarters can be adversely affected by
inclement weather due to the significant amount of outdoor seating at the Company’s restaurants.
Results of Operations
The Company’s operating income of $7,394,000 for the year ended October 1, 2016 decreased 17.3%
compared to operating income of $8,941,000 for the year ended October 3, 2015. This decrease resulted
primarily from: (i) a decrease in operating income of The Rustic Inn in Dania Beach, Florida in the amount of
$509,000 due to a road construction project started in the second quarter of fiscal 2016 by the local
municipality that is expected to last approximately 18 months, (ii) the closure, due to lease expiration, of V
Bar in November 2015, (iii) the closure of Center Cafe in February 2016, and (iv) higher than expected
operating payrolls due to labor law changes partially offset by: (i) operating income related to Shuckers in
Jensen Beach, FL in the amount of $523,000 (which was acquired on October 22, 2015), (ii) operating
income related to the Southwest Porch in Bryant Park, NY in the amount of $817,000 (which opened on July
1, 2015), (iii) the reversal of commercial rent tax liabilities in the amount of $1,101,000, and (iv) the
correction of an immaterial error related to an overstatement of a rent liability in the amount of $261,000.
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The following table summarizes the significant components of the Company’s operating results for the years
ended October 1, 2016 and October 3, 2015, respectively:
Revenues
During the Company’s year ended October 1, 2016 (“fiscal 2016”), revenues increased 2.9% compared to the
year ended October 3, 2015 (“fiscal 2015”). This increase resulted primarily from revenues related to
Shuckers in Jensen Beach, FL (which was acquired on October 22, 2015) and revenues related to the
Southwest Porch in Bryant Park, NY (which opened on July 1, 2015), partially offset by the same-store sales
impacts discussed below and the closure of Center Café in Washington, DC and three properties in Las Vegas
(V Bar, Shake & Burger and Towers Deli) as a result of lease expirations.
Food and Beverage Same-Store Sales
On a Company-wide basis, same store food and beverage sales decreased 2.0% for the year ended October 1,
2016 as compared to the year ended October 3, 2015 as follows:
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October 1,2016October 3,2015$%REVENUES: Food and beverage sales148,479$ 144,588$ $ 3,891 2.7% Other revenue1,673 1,275 398 31.2%Total revenues150,152 145,863 4,289 2.9%COSTS AND EXPENSES: Food and beverage cost of sales39,545 39,435 110 0.3% Payroll expenses50,718 46,903 3,815 8.1% Occupancy expenses16,515 16,790 (275)-1.6% Other operating costs and expenses19,719 18,494 1,225 6.6% General and administrative expenses11,708 10,885 823 7.6% Depreciation and amortization4,553 4,415 138 3.1%Total costs and expenses142,758 136,922 5,836 4.3%OPERATING INCOME7,394$ 8,941$ (1,547)$ -17.3%VarianceYear Ended(in thousands)October 1,2016October 3,2015$%Las Vegas44,130$ 44,636$ (506)$ -1.1%New York39,312 39,011 301 0.8%Washington, DC13,066 13,276 (210) -1.6%Atlantic City, NJ6,984 6,620 364 5.5%Boston3,597 3,912 (315) -8.1%Connecticut3,547 3,571 (24) -0.7%Florida25,418 27,811 (2,393) -8.6% Same store sales136,054 138,837 (2,783)$ -2.0%Other12,425 5,751 Food and beverage sales148,479$ 144,588$ Year EndedVariance(in thousands)
Same-store sales in Las Vegas (which exclude the V Bar, Shake & Burger and Towers Deli properties as they
were closed during the periods) decreased 1.1% primarily as a result of increased competition. Same-store
sales in New York increased 0.8%, primarily as a result of good weather conditions. Same-store sales in
Washington, DC, which excludes Center Café which closed in February 2016, decreased 1.6% as a result of
construction in Union Station where our Thunder Grill property is located. Same-store sales in Atlantic City
increased 5.5% primarily due to increased traffic at the properties in which we operate our restaurants. Same-
store sales in Boston decreased 8.1% primarily as a result of poor winter weather conditions as compared to
the same period last year. Same-store sales in Connecticut decreased 0.7% due to declining traffic at the
Foxwoods Resort and Casino where our properties are located. Same-store sales in Florida decreased 8.6%
reflecting decreased traffic at The Rustic Inn in Dania Beach, FL due to a road construction project started in
the second quarter of fiscal 2016 by the local municipality that is expected to last approximately 18 months,
combined with increased competition at one of our food court properties. Other food and beverage sales
consist of sales related to new restaurants opened or acquired during the applicable period (e.g., Southwest
Porch and Shuckers), sales related to properties that were closed during the periods due to lease expiration
and other closures and other catering sales.
Our restaurants generally do not achieve substantial increases in revenue from year to year, which we
consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons,
we would have to open additional restaurant facilities or expand existing restaurants. There can be no
assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not
operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to
establish their own identity.
Other Revenue
The increase in Other Revenue for fiscal 2016 as compared to fiscal 2015 is primarily due to an increase in
purchase service fees.
Costs and Expenses
Costs and expenses for the years ended October 1, 2016 and October 3, 2015 were as follows (in thousands):
The decrease in food and beverage costs as a percentage of total revenues for fiscal 2016 compared to fiscal
2015 is primarily the result of menu price increases in fiscal 2016 and the stabilization of commodity prices.
Payroll expenses as a percentage of total revenues for fiscal 2016 compared to fiscal 2015 increased primarily
as a result of labor law changes and payroll incurred at The Rustic Inn in Jupiter, FL with no corresponding
increase in sales.
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$%Food and beverage cost of sales39,545$ 26.3%39,435$ 27.0%110$ 0.3%Payroll expenses50,718 33.8%46,903 32.2%3,815 8.1%Occupancy expenses16,515 11.0%16,790 11.5%(275) -1.6%Other operating costs and expenses19,719 13.1%18,494 12.7%1,225 6.6%General and administrative expenses11,708 7.8%10,885 7.5%823 7.6%Depreciation and amortization4,553 3.0%4,415 3.0%138 3.1%142,758$ 136,922$ 5,836$ % to Total Revenues% to Total RevenuesIncreaseYear Ended October 3, 2015(Decrease)Year Ended October 1, 2016
Occupancy expenses as a percentage of total revenues, excluding the impact of the reversal of commercial
rent tax liabilities in the amount of $1,101,000 and the correction of an error related to an overstatement of a
rent liability in the amount of $261,000, for fiscal 2016 were consistent with the same period of last year.
Other operating costs and expenses as a percentage of total revenues for fiscal 2016 increased slightly as
compared to fiscal 2015 as a result of fixed costs at properties where sales declined.
General and administrative expenses (which relate solely to the corporate office in New York City) as a
percentage of total revenues for fiscal 2016 increased as compared to the same period of last year primarily as
a result of annual compensation adjustments and transaction costs in the first quarter of fiscal 2016 of
approximately $160,000 incurred in connection with the purchase of Shuckers.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for uncertain tax positions reflect
management’s best estimate of current and future taxes to be paid. We are subject to income tax in numerous
state taxing jurisdictions. Significant judgement and estimates are required in the determination of
consolidated income tax expense. The provision for income taxes reflects federal income taxes calculated on
a consolidated basis and state and local income taxes which are calculated on a separate entity basis. Most of
the restaurants we own or manage are owned or managed by a separate legal entity.
For state and local income tax purposes, certain losses incurred by a subsidiary may only be used to offset that
subsidiary's income, with the exception of the restaurants operating in the District of Columbia.
Accordingly, our overall effective tax rate has varied depending on the level of income and losses incurred at
individual subsidiaries.
Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements, which will result in taxable or deductible amounts in the
future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we
consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities,
projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions
about future taxable income require the use of significant judgment and are consistent with the plans and
estimates we are using to manage the underlying businesses.
Our overall effective tax rate in the future will be affected by factors such as income earned by our VIEs,
generation of FICA TIP credits and the mix of geographical income for state tax purposes as Nevada does not
impose an income tax.
The Revenue Reconciliation Act of 1993 provides tax credits to us for FICA taxes paid on tip income of
restaurant service personnel. The net benefit to us was $854,000 and $810,000 in fiscal 2016 and 2015,
respectively.
Liquidity and Capital Resources
Our primary source of capital has been cash provided by operations. We utilize cash generated from
operations to fund the cost of developing and opening new restaurants, acquiring existing restaurants owned
by others and remodeling existing restaurants we own; however, in recent years, we have utilized bank and
other borrowings to finance specific transactions.
Net cash flow provided by operating activities for fiscal 2016 was $7,602,000, compared to $11,301,000 for
the prior year. This decrease was attributable to a decrease in operating income discussed above combined
with changes in net working capital primarily related to accounts receivable, prepaid, refundable and accrued
income taxes and accounts payable and accrued expenses.
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Net cash used in investing activities for fiscal 2016 was $3,045,000 and resulted primarily from purchases of
fixed assets at existing restaurants, an additional $200,000 loan made to Meadowlands Newmark, LLC and
the cash portion of the purchase of Shuckers in the amount of $717,000.
Net cash used in investing activities for fiscal 2015 was $3,659,000 and resulted primarily from purchases of
fixed assets at existing restaurants and improvements made at our property, The Rustic Inn in Jupiter, FL,
which was opened in the last week of January 2015.
Net cash used in financing activities for fiscal 2016 of $7,053,000 resulted primarily from the payment of
dividends, principal payments on notes payable and distributions to non-controlling interests.
Net cash used in financing activities for fiscal 2015 of $6,569,000 resulted from the payment of dividends,
principal payments on notes payable and distributions to non-controlling interests partially offset by the
proceeds from the exercise of stock options.
The Company had a working capital deficiency of $658,000 at October 1, 2016, as compared to working
capital of $129,000 at October 3, 2015. We believe that our existing cash balances and cash provided by
operations will be sufficient to meet our liquidity and capital spending requirements at least through the next
12 months.
On January 4, 2016, April 4, 2016, July 1, 2016 and October 5, 2016, the Company paid quarterly cash
dividends in the amount of $0.25 per share on the Company’s common stock. The Company intends to
continue to pay such quarterly cash dividend for the foreseeable future; however, the payment of future
dividends is at the discretion of the Company’s Board of Directors and is based on future earnings, cash flow,
financial condition, capital requirements, changes in U.S. taxation and other relevant factors.
Restaurant Expansion
On March 27, 2015, the Company, through a wholly-owned subsidiary, entered into an agreement to operate a
kiosk in Bryant Park, New York, NY for the sale of food and beverages for an initial period expiring through
March 31, 2020 with an option to extend the agreement for five additional years. Renovations totaled
approximately $400,000 and the property opened in July 2015.
On July 24, 2015, the Company, through a wholly-owned subsidiary, paid $544,000 (including a $144,000
security deposit) to assume the lease for an event space located in New York, NY. The assumed lease expires
through March 31, 2026 with an option to extend the agreement for five additional years and provides for
annual rent in the amount of approximately $300,000.
On October 22, 2015, the Company, through its wholly-owned subsidiaries, Ark Shuckers, LLC, Ark
Shuckers Real Estate, LLC, and Ark Island Beach Resort LLC, acquired the assets of Shuckers Inc., a
restaurant and bar located at the Island Beach Resort in Jensen Beach, FL, and six condominium units (four of
which house the restaurant and bar operations) and a management company that handles the rental pool for
certain condominium units under lease with Island Beach Resort, Inc. The total purchase price was for
$5,650,000 plus inventory. The acquisition was accounted for as a business combination and was financed
with a bank loan from the Company’s existing lender in the amount of $5,000,000 and cash from operations.
In connection with this transaction, the Company also entered into a Credit Agreement (the “Revolving
Facility”) with Bank Hapoalim B.M. (the “Bank”) which expires on October 21, 2017. Borrowings under the
Revolving Facility will be evidenced by a promissory note (the “Revolving Note”) in favor of the Bank in the
amount of up to $10,000,000 and will be payable over five years with interest at an annual rate equal to
LIBOR plus 3.5% per year. Borrowings under the Revolving Facility are secured by a senior secured interest
in all of the Company’s and several of its subsidiaries’ personal and fixture property, but generally not in any
directly held investment property or general intangibles.
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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, 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 expenses and early operating losses
can generally be expected to depend upon the size and complexity of the facility being opened.
Our restaurants generally do not achieve substantial increases in revenue from year to year, which we
consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons,
we would have to open additional restaurant facilities or expand existing restaurants. There can be no
assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not
operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to
establish their own identity.
We may take advantage of other opportunities we consider to be favorable, when they occur, depending upon
the availability of financing and other factors.
Investment in and Receivable from New Meadowlands Racetrack
On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC
(“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing
member of NMR. On November 19, 2013, the Company invested an additional $464,000 in NMR through a
purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership
of 11.6% of Meadowlands Newmark, LLC and an ownership interest of 7.4% in NMR. In 2015, the
Company invested an additional $222,000, as a result of capital calls, bringing its total investment to
$4,886,000 with no change in ownership. In addition to the Company’s ownership interest in NMR, if casino
gaming is approved at the Meadowlands and NMR is granted the right to conduct said gaming, the Company
shall be granted the exclusive right to operate the food and beverage concessions in the gaming facility with
the exception of one restaurant. The voter referendum for casino gaming in Northern New Jersey was
defeated in November 2016. State law prohibits the issue from being put on the ballot before voters for the
following two years. In connection with NMR’s restructuring of an existing loan which comes due on June
30, 2018, and to extend the loan through December 2021, the Company expects to fund its proportionate
share of an anticipated $3 million capital call in January 2017 rather than having its interest diluted.
In conjunction with this investment, the Company, through a 98% owned subsidiary, Ark Meadowlands LLC
(“AM VIE”), also entered into a long-term agreement with NMR for the exclusive right to operate food and
beverage concessions serving the new raceway facilities (the “Racing F&B Concessions”) located in the new
raceway grandstand constructed at the Meadowlands Racetrack in northern New Jersey. Under the
agreement, NMR is responsible to pay for the costs and expenses incurred in the operation of the Racing F&B
Concessions, and all revenues and profits thereof inure to the benefit of NMR. AM VIE receives an annual
fee equal to 5% of the net profits received by NMR from the Racing F&B Concessions during each calendar
year.
On April 25, 2014, the Company loaned $1,500,000 to Meadowlands Newmark, LLC. The note bears interest
at 3%, compounded monthly and added to the principal, and is due in its entirety on January 31, 2024. The
note may be prepaid, in whole or in part, at any time without penalty or premium. On July 13, 2016, the
Company made an additional loan to Meadowlands Newmark, LLC in the amount of $200,000. Such amount
is subject to the same terms and conditions as the original loan as discussed above.
Recent Restaurant Dispositions and Charges
10
Lease Expirations – On October 31, 2014, the Company’s lease at the Towers Deli located at the Venetian
Casino Resort in Las Vegas, NV expired. The closure of this property did not result in a material charge.
On November 30, 2014, the Company’s lease at the Shake & Burger located at the Venetian Casino Resort in
Las Vegas, NV expired. The closure of this property did not result in a material charge.
On November 30, 2015, the Company’s lease at the V-Bar located at the Venetian Casino Resort in Las
Vegas, NV expired. The closure of this property did not result in a material charge.
The Company was advised by the landlord that it would have to vacate the Center Café property located at
Union Station in Washington, DC which was on a month-to-month lease. The closure of this property
occurred in February 2016 and did not result in a material charge.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial
statements. While all of these significant accounting policies impact our financial condition and results of
operations, we view certain of these policies as critical. Policies determined to be critical are those policies
that have the most significant impact on our consolidated financial statements and require management to use
a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable
judgments or estimate methodologies would cause a material effect on our consolidated results of operations,
financial position or cash flows for the periods presented in this report.
Below are listed certain policies that management believes are critical:
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. The accounting estimates
that require our most difficult and subjective judgments include allowances for potential bad debts on
receivables, the useful lives and recoverability of our assets, such as property and intangibles, fair values of
financial instruments and share-based compensation, the realizable value of our tax assets and other matters.
Because of the uncertainty in such estimates, actual results may differ from these estimates.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In the evaluation of the fair value and future benefits of long-lived assets,
we perform an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets.
If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to
its fair value. Various factors including estimated future sales growth and estimated profit margins are
included in this analysis.
Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.
Periodically it is concluded that certain properties have become impaired based on their existing and
anticipated future economic outlook in their respective markets. In such instances, we may impair assets to
reduce their carrying values to fair values. Estimated fair values of impaired properties are based on
11
comparable valuations, cash flows and/or management judgment. No impairment charges were necessary for
the years ended October 1, 2016 and October 3, 2015.
Recoverability of Investment in New Meadowlands Racetrack (“NMR”)
The carrying value of our Investment in Meadowlands Newmark LLC, which has a 63.7% ownership in
NMR, is determined using the cost method. In accordance with the cost method, our initial investment is
recorded at cost and we record dividend income when applicable, if dividends are declared. We review our
Investment in NMR each reporting period to determine whether a significant event or change in
circumstances has occurred that may have an adverse effect on its fair value, such as the defeat of the
referendum for casino gaming in Northern New Jersey in November 2016.
As a result, we performed an assessment of the recoverability of our indirect Investment in NMR as of
October 1, 2016 which involved critical accounting estimates. These estimates require significant
management judgment, include inherent uncertainties and are often interdependent; therefore, they do not
change in isolation. Factors that management estimated include, among others, the probability of gambling
being approved in Northern NJ which is the most heavily weighted assumption and NMR obtaining a license
to operate a casino, revenue levels, cost of capital, marketing spending, tax rates and capital spending.
In performing this assessment, we estimate the fair value of our Investment in NMR using our best estimate
of these assumptions which we believe would be consistent with what a hypothetical marketplace participant
would use. The variability of these factors depends on a number of conditions, including uncertainty about
future events and our inability as a minority shareholder to control certain outcomes and thus our accounting
estimates may change from period to period. If other assumptions and estimates had been used when these
tests were performed, impairment charges could have resulted.
As mentioned above, these factors do not change in isolation and, therefore, we do not believe it is practicable
or meaningful to present the impact of changing a single factor. Furthermore, if management uses different
assumptions or if different conditions occur in future periods, future impairment charges could result.
Leases
We recognize rent expense on a straight-line basis over the expected lease term, including option periods as
described below. Within the provisions of certain leases there are escalations in payments over the base lease
term, as well as renewal periods. The effects of the escalations have been reflected in rent expense on a
straight-line basis over the expected lease term, which includes option periods when it is deemed to be
reasonably assured that we would incur an economic penalty for not exercising the option. Percentage rent
expense is generally based upon sales levels and is expensed as incurred. Certain leases include both base
rent and percentage rent. We record rent expense on these leases based upon reasonably assured sales levels.
The consolidated financial statements reflect the same lease terms for amortizing leasehold improvements as
were used in calculating straight-line rent expense for each restaurant. Our judgments may produce materially
different amounts of amortization and rent expense than would be reported if different lease terms were used.
Deferred Income Tax Valuation Allowance
We provide such allowance due to uncertainty that some of the deferred tax amounts may not be realized.
Certain items, such as state and local tax loss carryforwards, are dependent on future earnings or the
availability of tax strategies. Future results could require an increase or decrease in the valuation allowance
and a resulting adjustment to income in such period.
Goodwill and Trademarks
12
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the
net identified tangible and intangible assets acquired. Trademarks are considered to have an indefinite life.
Goodwill and trademarks are not amortized, but are subject to impairment analysis at least once annually or
more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit's
carrying amount is greater than its fair value. At October 1, 2016, the Company performed a qualitative
assessment of factors to determine whether further impairment testing is required. Based on the results of the
work performed, the Company has concluded that no impairment loss was warranted at October 1, 2016.
Qualitative factors considered in this assessment include industry and market considerations, overall financial
performance and other relevant events, management expertise and stability at key positions. Additional
impairment analyses at future dates may be performed to determine if indicators of impairment are present,
and if so, such amount will be determined and the associated charge will be recorded to the Consolidated
Statements of Income.
Share-Based Compensation
The Company measures share-based compensation cost at the grant date based on the fair value of the award
and recognizes it as expense over the applicable vesting period using the straight-line method. Excess income
tax benefits related to share-based compensation expense that must be recognized directly in equity are
considered financing rather than operating cash flow activities.
The fair value of each of the Company’s stock options is estimated on the date of grant using a Black-Scholes
option-pricing model that uses assumptions that relate to the expected volatility of the Company’s common
stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate.
The Company generally issues new shares upon the exercise of employee stock options.
Recently Adopted and Issued Accounting Standards
See Note 1 of Notes to Consolidated Financial Statements for a description of recent accounting
pronouncements, including those adopted in fiscal 2016 and the expected dates of adoption and the
anticipated impact on the Consolidated Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Market For The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market for Our Common Stock
Our Common Stock, $.01 par value, is traded in the over-the-counter market on the Nasdaq Capital Market
under the symbol “ARKR.” The high and low sale prices for our Common Stock from September 28, 2014
through October 1, 2016 are as follows:
Calendar 2014
Fourth Quarter
Calendar 2015
First Quarter
Second Quarter
Third Quarter
Low
$21.10
21.77
24.26
22.85
13
High
$22.46
25.24
26.99
25.47
Fourth Quarter
Calendar 2016
First Quarter
Second Quarter
Third Quarter
22.13
24.45
20.01
20.00
22.18
22.95
23.70
24.10
As of December 27, 2016, there were 34 holders of record of our common stock and approximately an
additional 1,589 beneficial owners.
Dividend Policy
On December 15, 2014, March 3, 2015, June 9, 2015, September 3, 2015, December 7, 2015, March 1, 2016,
June 2, 2016 and September 7, 2016 our Board of Directors declared quarterly cash dividends in the amount
of $0.25 per share. We intend to continue to pay such quarterly cash dividends for the foreseeable future;
however, the payment of future dividends is at the discretion of our Board of Directors and is based on future
earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant
factors.
14
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and Subsidiaries
(the “Company”) as of October 1, 2016 and October 3, 2015, and the related consolidated statements of
income, changes in equity and cash flows for each of the years in the two-year period ended October 1, 2016.
Ark Restaurants Corp. and Subsidiaries’ management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, 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, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Ark Restaurants Corp. and Subsidiaries as of October 1, 2016 and October 3, 2015,
and their results of operations and cash flows for each of the years in the two-year period ended October 1,
2016 in conformity with accounting principles generally accepted in the United States of America.
/s/ CohnReznick LLP
Jericho, New York
December 30, 2016
15
16
ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In Thousands, Except Per Share Amounts)October 1,2016October 3,2015(see Note 1)ASSETSCURRENT ASSETS:Cash and cash equivalents (includes $889 at October 1, 2016 and $604 at October 3, 2015 related to VIEs)7,239$ 9,735$ Accounts receivable (includes $429 at October 1, 2016 and $303 at October 3, 2015 related to VIEs)3,750 3,221 Employee receivables453 485 Inventories (includes $23 at October 1, 2016 and $24 at October 3, 2015 related to VIEs)1,892 1,956 Prepaid expenses and other current assets (includes $228 at October 1, 2016 and $216 at October 3, 2015 related to VIEs)2,662 2,365 Total current assets15,996 17,762 FIXED ASSETS - Net (includes $22 at October 1, 2016 and $40 at October 3, 2015 related to VIEs)29,546 27,804 INTANGIBLE ASSETS - Net526 499 GOODWILL7,895 6,813 TRADEMARKS1,611 1,221 DEFERRED INCOME TAXES3,416 4,453 INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK6,701 6,453 OTHER ASSETS (includes $71 at October 1, 2016 and October 3, 2015 related to VIEs)2,564 1,562 TOTAL ASSETS68,255$ 66,567$ LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable - trade (includes $114 at October 1, 2016 and $81 at October 3, 2015 related to VIEs)2,876$ 3,207$ Accrued expenses and other current liabilities (includes $238 at October 1, 2016 and $131 at October 3, 2015 related to VIEs)10,555 10,332 Accrued income taxes606 2,477 Current portion of notes payable2,617 1,617 Total current liabilities16,654 17,633 OPERATING LEASE DEFERRED CREDIT (includes $73 at October 1, 2016 and $81 at October 3, 2015 related to VIEs)3,576 3,796 NOTES PAYABLE, LESS CURRENT PORTION, net of deferred financing costs 5,321 3,907 TOTAL LIABILITIES 25,551 25,336 COMMITMENTS AND CONTINGENCIES EQUITY: Common stock, par value $.01 per share - authorized, 10,000 shares; issued, 3,423 and 4,774 shares at October 1, 2016 and October 3, 2015; outstanding, 3,423 and 3,418 shares at October 1, 2016 and October 3, 2015 34 48 Additional paid-in capital12,942 25,682 Retained earnings27,158 26,548 40,134 52,278 Less treasury stock, at cost, of 1,356 shares at October 3, 2015- (13,220) Total Ark Restaurants Corp. shareholders' equity40,134 39,058 NON-CONTROLLING INTERESTS 2,570 2,173 TOTAL EQUITY 42,704 41,231 TOTAL LIABILITIES AND EQUITY68,255$ 66,567$ See notes to consolidated financial statements.
17
ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In Thousands, Except Per Share Amounts)October 1,2016October 3,2015REVENUES: Food and beverage sales148,479$ 144,588$ Other revenue1,673 1,275 Total revenues150,152 145,863 COSTS AND EXPENSES: Food and beverage cost of sales39,545 39,435 Payroll expenses50,718 46,903 Occupancy expenses16,515 16,790 Other operating costs and expenses19,719 18,494 General and administrative expenses11,708 10,885 Depreciation and amortization4,553 4,415 Total costs and expenses142,758 136,922 OPERATING INCOME7,394 8,941 OTHER (INCOME) EXPENSE: Interest expense416 238 Interest income(180) (47) Other (income) expense, net(430) (238) Total other (income) expense, net(194) (47) INCOME BEFORE PROVISION FOR INCOME TAXES7,588 8,988 Provision for income taxes2,098 2,596 CONSOLIDATED NET INCOME5,490 6,392 Net income attributable to non-controlling interests(1,460) (1,002) NET INCOME ATTRIBUTABLE TO ARK RESTAURANTS CORP.4,030$ 5,390$ NET INCOME PER ARK RESTAURANTS CORP. COMMON SHARE: Basic1.18$ 1.59$ Diluted1.15$ 1.54$ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic3,418 3,393 Diluted3,507 3,509 Year EndedSee notes to consolidated financial statements.
18
ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYYEARS ENDED OCTOBER 1, 2016 AND OCTOBER 3, 2015(In Thousands, Except Per Share Amounts)SharesAmountBALANCE - September 27, 20144,733 47$ 25,167$ 24,554$ (13,220)$ 36,548$ 2,344$ 38,892$ Net income - - - 5,390 - 5,390 1,002 6,392 Exercise of stock options41 1 524 - - 525 - 525 Tax benefit on exercise of stock options - - 113 - - 113 - 113 Stock-based compensation - - 426 - - 426 - 426 Change in excess tax benefits from stock-based compensation - - (548) - - (548) - (548) Distributions to non-controlling interests - - - - - - (1,173) (1,173) Accrued and paid dividends - $1.00 per share - - - (3,396) - (3,396) - (3,396) BALANCE - October 3, 20154,774 48 25,682 26,548 (13,220) 39,058 2,173 41,231 Net income- - - 4,030 - 4,030 1,460 5,490 Exercise of stock options5 - 83 - - 83 - 83 Tax benefit on exercise of stock options - - 11 - - 11 - 11 Stock-based compensation- - 286 - - 286 - 286 Change in excess tax benefits from stock-based compensation - - 86 - - 86 - 86 Retirement of treasury shares(1,356) (14) (13,206) - 13,220 - - - Distributions to non-controlling interests- - - - - - (1,063) (1,063) Dividends paid - $1.00 per share- - - (3,420) - (3,420) - (3,420) BALANCE - October 1, 20163,423 34$ 12,942$ 27,158$ -$ 40,134$ 2,570$ 42,704$ Additional Paid-In CapitalNon-controlling InterestsTotal Ark Restaurants Corp. Shareholders' EquitySee notes to consolidated financial statements. Common StockRetained EarningsTreasury StockTotal Equity
- 19 -
ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands)October 1,2016October 3,2015CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income5,490$ 6,392$ Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on closure of restaurants16 - Deferred income taxes1,134 213 Stock-based compensation286 426 Depreciation and amortization 4,553 4,415 Amortization of deferred financing costs43 - Operating lease deferred credit(220) (423) Excess tax benefits related to stock-based compensation(11) (113) Changes in operating assets and liabilities: Accounts receivable(529) (205) Inventories131 (124) Prepaid, refundable and accrued income taxes(1,886) 1,428 Prepaid expenses and other current assets(191) (874) Other assets(865) (445) Accounts payable - trade(331) 615 Accrued expenses and other current liabilities(18) (4) Net cash provided by operating activities7,602 11,301 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (2,160) (3,204) Loans and advances made to employees(198) (247) Payments received on employee receivables230 161 Payments received on note receivable- 253 Purchase of member interest in Meadowlands Newmark LLC- (222) Loan made to Meadowlands Newmark LLC(200) - Purchase of Shuckers(717) - Purchase of leasehold rights- (400) Net cash used in investing activities (3,045) (3,659) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable(2,533) (1,794) Payment of debt financing costs(131) - Dividends paid(3,420) (4,240) Proceeds from issuance of stock upon exercise of stock options83 525 Excess tax benefits related to stock-based compensation11 113 Distributions to non-controlling interests(1,063) (1,173) Net cash used in financing activities(7,053) (6,569) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(2,496) 1,073 CASH AND CASH EQUIVALENTS, Beginning of year9,735 8,662 CASH AND CASH EQUIVALENTS, End of year7,239$ 9,735$ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest416$ 238$ Income taxes2,850$ 956$ Non-cash financing activities: Note payable in connection with the purchase of Shuckers5,000$ -$ Retirement of 1,356 treasury shares13,220$ -$ Changes in excess tax benefits from stock-based compensation86$ (548)$ Year EndedSee notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of October 1, 2016, Ark Restaurants Corp. and Subsidiaries (the “Company”) owned and operated 21
restaurants and bars, 19 fast food concepts and catering operations, exclusively in the United States, that have
similar economic characteristics, nature of products and service, class of customers and distribution methods.
The Company believes it meets the criteria for aggregating its operating segments into a single reporting segment
in accordance with applicable accounting guidance.
The Company operates six restaurants in New York City, two in Washington, D.C., five in Las Vegas, Nevada,
three in Atlantic City, New Jersey, one at the Foxwoods Resort Casino in Ledyard, Connecticut, one in Boston,
Massachusetts and three in Florida. The Las Vegas operations include four restaurants within the New York-
New York Hotel & Casino Resort and operation of the hotel's room service, banquet facilities, employee dining
room and six food court concepts and one restaurant within the Planet Hollywood Resort and Casino. In Atlantic
City, New Jersey, the Company operates a restaurant and a bar in the Resorts Atlantic City Hotel and Casino and
a restaurant and bar at the Tropicana Hotel and Casino. The operation at the Foxwoods Resort Casino consists of
one fast food concept and a restaurant. In Boston, Massachusetts, the Company operates a restaurant in the
Faneuil Hall Marketplace. The Florida operations include two Rustic Inn’s, one in Dania Beach, Florida and one
in Jupiter, Florida, Shuckers in Jensen Beach, Florida and the operation of five fast food facilities in Tampa,
Florida and seven fast food facilities in Hollywood, Florida, each at a Hard Rock Hotel and Casino.
Basis of Presentation — The accompanying consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") and accounting principles
generally accepted in the United States of America ("GAAP"). The Company's reporting currency is the United
States dollar.
During the quarter ended July 2, 2016, the Company identified an immaterial error in previously issued financial
statements related to an overstatement of a rent liability in the amount of $261,000 ($191,000 net of tax or $0.06
per basic and $0.05 per diluted share for the 13 and 39-weeks ended July 2, 2016). The Company reviewed this
accounting error utilizing SEC Staff Accounting Bulletin No. 99, “Materiality” (“SAB 99”) and SEC Staff
Accounting Bulletin No. 108, “Effects of Prior Year Misstatements on Current Year Financial Statements”
(“SAB 108”) and determined the impact of the error to be immaterial to any prior period’s presentation. The
accompanying consolidated financial statements as of October 1, 2016 reflect the correction of the
aforementioned immaterial error.
Accounting Period — The Company’s fiscal year ends on the Saturday nearest September 30. The fiscal year
ended October 1, 2016 included 52 weeks and the fiscal year ended October 3, 2015 included 53 weeks.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The accounting estimates that require management’s most difficult and
subjective judgments include allowances for potential bad debts on receivables, the useful lives and
recoverability of its assets, such as property and intangibles, fair values of financial instruments and share-based
compensation, the realizable value of its tax assets and determining when investment impairments are other-than-
temporary. Because of the uncertainty in such estimates, actual results may differ from these estimates.
Principles of Consolidation — The consolidated financial statements include the accounts of Ark Restaurants
Corp. and all of its wholly-owned subsidiaries, partnerships and other entities in which it has a controlling
interest. Also included in the consolidated financial statements are certain variable interest entities (“VIEs”). All
significant intercompany balances and transactions have been eliminated in consolidation.
- 20 -
Non-Controlling Interests — Non-controlling interests represent capital contributions, income and loss
attributable to the shareholders of less than wholly-owned and consolidated entities.
Seasonality — The Company has substantial fixed costs that do not decline proportionally with sales. The
first and second fiscal quarters, which include the winter months, usually reflect lower customer traffic than in
the third and fourth fiscal quarters. However, sales in the third and fourth fiscal quarters can be adversely
affected by inclement weather due to the significant amount of outdoor seating at the Company’s restaurants.
Fair Value of Financial Instruments — The carrying amount of cash and cash equivalents, receivables, accounts
payable and accrued expenses approximate fair value due to the immediate or short-term maturity of these
financial instruments. The fair values of notes receivable and payable are determined using current applicable
rates for similar instruments as of the balance sheet date and approximate the carrying value of such debt.
Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, deposits with banks and highly
liquid investments generally with original maturities of three months or less. Outstanding checks in excess of
account balances, typically vendor payments, payroll and other contractual obligations disbursed after the last day
of a reporting period are reported as a current liability in the accompanying consolidated balance sheets.
Concentrations of Credit Risk — Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company reduces credit
risk by placing its cash and cash equivalents with major financial institutions with high credit ratings. At times,
such amounts may exceed Federally insured limits. Accounts receivable are primarily comprised of normal
business receivables such as credit card receivables that are paid off in a short period of time and amounts due
from the hotel operators where the Company has a location, and are recorded when the products or services have
been delivered. The Company reviews the collectability of its receivables on an ongoing basis, and provides for
an allowance when it considers the entity unable to meet its obligation. The concentration of credit risk with
respect to accounts receivable is generally limited due to the short payment terms extended by the Company and
the number of customers comprising the Company’s customer base.
For the years ended October 1, 2016 and October 3, 2015, the Company did not make purchases from any one
vendor that accounted for 10% or greater of total purchases.
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 — Fixed assets are stated at cost less accumulated depreciation and amortization. Depreciation is
determined using the straight-line method over the estimated useful lives of the assets. Estimated lives range
from three to seven years for furniture, fixtures and equipment and up to 40 years for buildings and related
improvements. 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 30 years. For leases with renewal periods at the Company’s option, if failure to
exercise a renewal option imposes an economic penalty to the Company, management may determine at the
inception of the lease that renewal is reasonably assured and include the renewal option period in the
determination of appropriate estimated useful lives. Routine expenditures for repairs and maintenance are
charged to expense when incurred. Major replacements and improvements are capitalized. Upon retirement or
disposition of fixed assets, the cost and related accumulated depreciation are removed from the Consolidated
Balance Sheets and any resulting gain or loss is recognized in the Consolidated Statements of Income.
The Company includes in construction in progress improvements to restaurants that are under construction or are
undergoing substantial improvements. Once the projects have been completed, the Company begins depreciating
and amortizing the assets. Start-up costs incurred during the construction period of restaurants, including rental
of premises, training and payroll, are expensed as incurred.
Intangible Assets — Intangible assets consist principally of purchased leasehold rights, operating rights and
covenants not to compete. Costs associated with acquiring leases and subleases, principally purchased leasehold
rights, and operating rights have been capitalized and are being amortized on the straight-line method based upon
the initial terms of the applicable lease agreements. Covenants not to compete arising from restaurant
acquisitions are amortized over the contractual period, typically five years.
- 21 -
Long-lived Assets — Long-lived assets, such as property, plant and equipment, and purchased intangibles subject
to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In the evaluation of the fair value and future benefits of
long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the
related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the
carrying value is reduced to its fair value. Various factors including estimated future sales growth and estimated
profit margins are included in this analysis. No impairment charges were necessary for the years ended October
1, 2016 and October 3, 2015.
Goodwill and Trademarks — Goodwill is recorded when the purchase price paid for an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets acquired. Trademarks are considered to
have an indefinite life. Goodwill and trademarks are not amortized, but are subject to impairment analysis at
least once annually or more frequently upon the occurrence of an event or when circumstances indicate that a
reporting unit's carrying amount is greater than its fair value. At October 1, 2016, the Company performed a
qualitative assessment of factors to determine whether further impairment testing is required. Based on the
results of the work performed, the Company has concluded that no impairment loss was warranted at October 1,
2016. Qualitative factors considered in this assessment include industry and market considerations, overall
financial performance and other relevant events, management expertise and stability at key positions. Additional
impairment analyses at future dates may be performed to determine if indicators of impairment are present, and if
so, such amount will be determined and the associated charge will be recorded to the Consolidated Statements of
Income.
Investments – Each reporting period, the Company reviews its investments in equity and debt securities, except
for those classified as trading, to determine whether a significant event or change in circumstances has occurred
that may have an adverse effect on the fair value of such investment. When such events or changes occur, the
Company evaluates the fair value compared to cost basis in the investment. For investments in non-publicly
traded companies, management's assessment of fair value is based on valuation methodologies including
discounted cash flows, estimates of sales proceeds, and appraisals, as appropriate. The Company considers the
assumptions that it believes hypothetical marketplace participants would use in evaluating estimated future cash
flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies.
In the event the fair value of an investment declines below the Company’s cost basis, management is required to
determine if the decline in fair value is other than temporary. If management determines the decline is other than
temporary, an impairment charge is recorded. Management's assessment as to the nature of a decline in fair value
is based on, among other things, the length of time and the extent to which the market value has been less than
the cost basis; the financial condition and near-term prospects of the issuer; and the Company’s intent and ability
to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Leases — The Company recognizes rent expense on a straight-line basis over the expected lease term, including
option periods as described below. Within the provisions of certain leases there are escalations in payments over
the base lease term, as well as renewal periods. The effects of the escalations have been reflected in rent expense
on a straight-line basis over the expected lease term, which includes option periods when it is deemed to be
reasonably assured that the Company would incur an economic penalty for not exercising the option. Tenant
allowances are included in the straight-line calculations and are being deferred over the lease term and reflected
as a reduction in rent expense. Percentage rent expense is generally based upon sales levels and is expensed as
incurred. Certain leases include both base rent and percentage rent. The Company records rent expense on these
leases based upon reasonably assured sales levels. The consolidated financial statements reflect the same lease
terms for amortizing leasehold improvements as were used in calculating straight-line rent expense for each
restaurant. The judgments of the Company may produce materially different amounts of amortization and rent
expense than would be reported if different lease terms were used.
Revenue Recognition — Company-owned restaurant sales are comprised almost entirely of food and beverage
sales. The Company records revenue at the time of the purchase of products by customers. Included in Other
Revenues are purchase service fees which represent commissions earned by a subsidiary of the Company for
providing purchasing services to other restaurant groups.
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The Company offers customers the opportunity to purchase gift certificates. At the time of purchase by the
customer, the Company records a gift certificate liability for the face value of the certificate purchased. The
Company recognizes the revenue and reduces the gift certificate liability when the certificate is redeemed. The
Company does not reduce its recorded liability for potential non-use of purchased gift cards. As of October 1,
2016, the total liability for gift cards in the amount of $161,487 is included in Accrued Expenses and Other
Current Liabilities in the Consolidated Balance Sheet.
Additionally, the Company presents sales tax on a net basis in its consolidated financial statements.
Occupancy Expenses — Occupancy expenses include rent, rent taxes, real estate taxes, insurance and utility
costs.
Defined Contribution Plan — The Company offers a defined contribution savings plan (the “Plan”) to all of its
full-time employees. Eligible employees may contribute pre-tax amounts to the Plan subject to the Internal
Revenue Code limitations. Company contributions to the Plan are at the discretion of the Board of Directors.
During the years ended October 1, 2016 and October 3, 2015, the Company did not make any contributions to the
Plan.
Income Taxes — Income taxes are accounted for under the asset and liability method whereby deferred tax assets
and liabilities are recognized for future tax consequences attributable to the temporary differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment
date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
The Company has recorded a liability for unrecognized tax benefits resulting from tax positions taken, or
expected to be taken, in an income tax return. It is the Company’s policy to recognize interest and penalties
related to uncertain tax positions as a component of income tax expense. Uncertain tax positions are evaluated
and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.
Non-controlling interests relating to the income or loss of consolidated partnerships includes no provision for
income taxes as any tax liability related thereto is the responsibility of the individual minority investors.
Income Per Share of Common Stock — Basic net income per share is calculated on the basis of the weighted
average number of common shares outstanding during each period. Diluted net income per share reflects the
additional dilutive effect of potentially dilutive shares (principally those arising from the assumed exercise of
stock options).
Stock-based Compensation — The Company measures stock-based compensation cost at the grant date based on
the fair value of the award and recognizes it as expense over the applicable vesting period using the straight-line
method. Upon exercise of options, excess income tax benefits related to share-based compensation expense that
must be recognized directly in equity are considered financing rather than operating cash flow activities. The
Company did not grant any options during the fiscal years 2016 and 2015. The Company generally issues new
shares upon the exercise of employee stock options.
The fair value of each of the Company’s stock options is estimated on the date of grant using a Black-Scholes
option-pricing model that uses assumptions that relate to the expected volatility of the Company’s common stock,
the expected dividend yield of the Company’s stock, the expected life of the options and the risk free interest rate.
Recently Adopted Accounting Standards — In April 2015, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt
Issuance Costs, which changes the presentation of debt issuance costs in a reporting entity's financial statements.
Under this new guidance, debt issuance costs will be presented as a direct deduction from the related debt
liability instead of an asset. This accounting change is consistent with the current presentation under GAAP for
debt discounts and it also converges the guidance under GAAP with that in the International Financial Reporting
Standards. Debt issuance costs will reduce the proceeds from debt borrowings in the statement of cash flows
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instead of being presented as a separate caption in the financing section of that statement. Amortization of debt
issuance costs will continue to be reported as interest expense in the statements of income. This accounting
update does not affect the current accounting guidance for the recognition and measurement of debt issuance
costs. This update is effective for public business entities for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. Early adoption is permitted for all entities for financial statements
that have not been previously issued. This guidance has been adopted by the Company as of October 4, 2015 and
did not have a material impact on its consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period
Adjustments. The new guidance simplifies the accounting for adjustments made to provisional amounts
recognized in a business combination and eliminates the requirement to retrospectively account for those
adjustments. The amendments in this update are effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2015, with early adoption permitted. The new guidance has been
adopted by the Company as of October 4, 2015 and did not have a material impact on our consolidated financial
statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification
of Deferred Taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related
valuation allowance, be classified as noncurrent on the balance sheet. The guidance is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2016, with early adoption
permitted. The new guidance has been adopted on a prospective basis by the Company for the fiscal year ended
October 3, 2015.
New Accounting Standards Not Yet Adopted — In May 2014, the FASB issued updated accounting guidance
that provides a comprehensive new revenue recognition model that requires a company to recognize revenue to
depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to
receive in exchange for those goods or services. Additionally, this guidance expands related disclosure
requirements. The pronouncement is effective for annual and interim reporting periods beginning after December
15, 2017. Early application is not permitted. This update permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the impact of the adoption of this guidance on
its financial condition, results of operations or cash flows as well as the expected adoption method.
In June 2014, the FASB issued guidance which clarifies the recognition of stock-based compensation over the
required service period, if it is probable that the performance condition will be achieved. This guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and should
be applied prospectively. The adoption of this guidance is not expected to have a significant impact on the
Company’s consolidated financial condition or results of operations.
In August 2014, the FASB issued guidance that requires management to evaluate, at each annual and interim
reporting period, the company's ability to continue as a going concern within one year of the date the financial
statements are issued and provide related disclosures. This accounting guidance is effective for the Company on a
prospective basis beginning in the first quarter of fiscal 2017 and is not expected to have a material effect on the
consolidated financial statements.
In January 2015, the FASB issued guidance simplifying the income statement presentation by eliminating the
concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their
unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies
income statement presentation by altogether removing the concept of extraordinary items from consideration.
The amendments are effective for annual reporting periods, including interim periods within those reporting
periods, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied
from the beginning of the annual reporting period. The Company does not believe this guidance will have a
material impact on its consolidated financial statements.
In February 2015, the FASB amended the consolidation standards for reporting entities that are required to
evaluate whether they should consolidate certain legal entities. Under the new guidance, all legal entities are
subject to reevaluation under the revised consolidation model. Specifically, the guidance (i) modifies the
evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting
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interest entities; (ii) eliminates the presumption that a general partner should consolidate a limited partnership;
(iii) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that
have fee arrangements and related party relationships; and (iv) provides a scope exception from consolidation
guidance for reporting entities with interests in legal entities that are required to comply with or operate in
accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act for registered
money market funds. The amendments are effective for annual reporting periods, beginning after December 15,
2015. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating
the impact of this guidance on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of
Inventory. The guidance requires an entity to measure inventory at the lower of cost or net realizable value, which
is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation, rather than the lower of cost or market in the previous guidance. This amendment
applies to inventory that is measured using first-in, first-out (FIFO). This amendment is effective for public
entities for fiscal years beginning after December 15, 2016, including interim periods within those years. A
reporting entity should apply the amendments prospectively with earlier application permitted as of the beginning
of an interim or annual reporting period. The Company does not expect the adoption of this guidance to have a
material impact on its financial position or results of operations.
In January 2016, FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement
of Financial Assets and Financial Liabilities. The guidance will require equity investments in unconsolidated
entities (other than those accounted for using the equity method of accounting) to be measured at fair value with
changes in fair value recognized in net income. The amendments in this update will also simplify the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to
identify impairment, eliminate the requirement for public business entities to disclose the method and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet and require these entities to use the exit price notion when measuring fair
value of financial instruments for disclosure purposes. This guidance also changes the presentation and
disclosure requirements for financial instruments as well as clarifying the guidance related to valuation allowance
assessments when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt
securities. The amendments in this guidance are effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. Early adoption is permitted for financial statements of fiscal
years and interim periods that have not been issued. The Company is currently assessing the potential impact of
this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU is intended to improve the reporting of
leasing transactions to provide users of financial statements with more decision-useful information. This ASU
will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights
and obligations created by those leases. The amendments in this update are effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The
Company is currently assessing the potential impact of this ASU on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers – Principal versus
Agent Considerations. This ASU is intended to clarify revenue recognition accounting when a third party is
involved in providing goods or services to a customer. The amendments in this update are effective for financial
statements issued for annual periods beginning after December 15, 2017, including interim periods within those
annual periods, and early application is permitted, but no earlier than fiscal years beginning after December 16,
2016. The Company is currently assessing the impact of this ASU on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation – Improvements to
Employee Share-Based Payment Accounting. This ASU is intended to simplify the accounting for share-based
payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities and classification on the statement of cash flows. The amendments in this update are effective for
financial statements issued for annual periods beginning after December 15, 2016, including interim periods
within those annual periods, and early application is permitted as of the beginning of an interim or annual
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reporting period. The Company is currently assessing the impact of this ASU on its consolidated financial
statements.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers – Identifying
Performance Obligations and Licensing. This ASU is intended to clarify identifying performance obligations
and licensing implementation guidance. The amendments in this update are effective for financial statements
issued for annual periods beginning after December 15, 2017, and early application is permitted, but no earlier
than fiscal years beginning after December 16, 2016. The Company does not expect the adoption of this ASU to
have a material impact on its consolidated financial statements.
In August 2016, FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments.
This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in
practice. The guidance is to be applied using a retrospective transition method to each period presented and is
effective for annual periods beginning after December 15, 2017, including interim periods within those annual
periods. The Company is currently assessing the impact this ASU will have on its consolidated financial
statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other than
Inventory. The amendments in this ASU remove the prohibition against the recognition of current and deferred
income tax effects of intra-entity transfers of assets other than inventory until the asset has been sold to an outside
party. The ASU is effective for fiscal years and interim periods within those years beginning after December 15,
2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated
financial statements.
In October 2016, the FASB issued ASU No. 2016-17, Consolidation: Interests Held through Related Parties
That Are Under Common Control. The amendments in this ASU change how a reporting entity that is the single
decision maker of a variable interest entity should treat indirect interests in the entity held through related parties
that are under common control with the reporting entity when determining whether it is the primary beneficiary
of that variable interest entity. The ASU is effective for fiscal years and interim periods within those years
beginning after December 15, 2016. The Company does not expect the adoption of this ASU to have a material
impact on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The
amendments address diversity in practice that exists in the classification and presentation of changes in restricted
cash and require that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is
effective retrospectively for fiscal years and interim periods within those years beginning after December 15,
2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated
financial statements.
2. CONSOLIDATION OF VARIABLE INTEREST ENTITIES
The Company consolidates any variable interest entities in which it holds a variable interest and is the primary
beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following
characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack
(i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to
absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or
(c) the equity investors have voting rights that are not proportional to their economic interests and substantially
all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately
few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the
activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to
absorb losses or the right to receive benefits that could potentially be significant to the VIE.
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The Company has determined that it is the primary beneficiary of three VIEs and, accordingly, consolidates the
financial results of these entities. Following are the required disclosures associated with the Company’s
consolidated VIEs:
(1) Amounts due from Ark Restaurants Corp. and affiliates are eliminated upon consolidation.
The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the
Company’s general assets; rather, they represent claims against the specific assets of the consolidated VIEs.
Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could
be used to satisfy claims against the Company’s general assets.
3. RECENT RESTAURANT EXPANSION
On October 22, 2015, the Company, through its wholly-owned subsidiaries, Ark Shuckers, LLC and Ark
Shuckers Real Estate, LLC, acquired the assets of Shuckers Inc. (“Shuckers”), a restaurant and bar located at the
Island Beach Resort in Jensen Beach, FL, and six condominium units (four of which house the restaurant and bar
operations). In addition, Ark Island Beach Resort LLC, a wholly-owned subsidiary of the Company, acquired
Island Beach Resort Inc., a management company that administers a rental pool of certain condominium units
under lease. The total purchase price was $5,717,000. The acquisition is accounted for as a business
combination and was financed with a bank loan in the amount of $5,000,000 and cash from operations. The fair
values of the assets acquired were allocated as follows:
The above purchase price allocation resulted in an increase (decrease) related to the trademarks, customer list and
goodwill of $240,000, $(110,000) and $(130,000), respectively, from the preliminary allocation. The resulting
changes to customer list amortization were not material to any period presented.
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October 1,2016October 3,2015Cash and cash equivalents889$ 604$ Accounts receivable429 303 Inventories23 24 Prepaid expenses and other current assets228 216 Due from Ark Restaurants Corp. and affiliates (1)- 103 Fixed assets - net22 40 Other assets71 71 Total assets1,662$ 1,361$ Accounts payable - trade114$ 81$ Accrued expenses and other current liabilities238 131 Due to Ark Restaurants Corp. and affiliates (1)173 - Operating lease deferred credit73 81 Total liabilities 598 293 Equity of variable interest entities 1,064 1,068 Total liabilities and equity1,662$ 1,361$ (in thousands)Inventory67,000$ Commercial condominium units3,584,800 Residential condominium units263,000 Furniture, fixtures and equipment240,000 Trademarks390,000 Customer list90,000 Goodwill1,082,200 5,717,000$
The Consolidated Statement of Income for the year ended October 1, 2016 includes revenues and operating
income of approximately $4,763,000 and $523,000, respectively, related to Shuckers. Transaction costs incurred
in the amount of approximately $170,000 are included in general and administrative expenses in the Consolidated
Statement of Income for the year ended October 1, 2016. The Company expects the Goodwill and indefinite life
Trademarks to be deductible for tax purposes.
The unaudited pro forma financial information set forth below is based upon the Company’s historical
Consolidated Statements of Income for the years ended October 1, 2016 and October 3, 2015 and includes the
results of operations for Shuckers for the period prior to acquisition. The unaudited pro forma financial
information is presented for informational purposes only and may not be indicative of what actual results of
operations would have been had the acquisition of Shuckers occurred on the dates indicated, nor does it purport
to represent the results of operations for future periods.
On March 27, 2015, the Company, through a wholly-owned subsidiary, entered into an agreement to operate a
kiosk in Bryant Park, New York, NY for the sale of food and beverages for an initial period expiring through
March 31, 2020 with an option to extend the agreement for five additional years. Renovations totaled
approximately $400,000 and the property opened in July 2015.
On July 24, 2015, the Company, through a wholly-owned subsidiary, paid $544,000 (including a $144,000
security deposit) to assume the lease for an event space located in New York, NY. The assumed lease expires
through March 31, 2026 with an option to extend the agreement for five additional years and provides for annual
rent in the amount of approximately $300,000.
4. RECENT RESTAURANT DISPOSITIONS
Lease Expirations – On October 31, 2014, the Company’s lease at the Towers Deli located at the Venetian
Casino Resort in Las Vegas, NV expired. The closure of this property did not result in a material charge.
On November 30, 2014, the Company’s lease at the Shake & Burger located at the Venetian Casino Resort in Las
Vegas, NV expired. The closure of this property did not result in a material charge.
On November 30, 2015, the Company’s lease at the V-Bar located at the Venetian Casino Resort in Las Vegas,
NV expired. The closure of this property did not result in a material charge.
The Company was advised by the landlord that it would have to vacate the Center Café property located at Union
Station in Washington, DC which was on a month-to-month lease. The closure of this property occurred in
February 2016 and did not result in a material charge.
5. INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK
On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC
(“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing member of
NMR. On November 19, 2013, the Company invested an additional $464,000 in NMR through a purchase of an
additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership of 11.6% of
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October 1,2016October 3,2015Total revenues150,394$ 150,995$ Net income 4,051$ 6,330$ Net income per share - basic1.19$ 1.87$ Net income per share - diluted1.16$ 1.80$ Year Ended
Meadowlands Newmark, LLC and an ownership interest of 7.4% in NMR. In 2015, the Company invested an
additional $222,000, as a result of capital calls, bringing its total investment to $4,886,000 with no change in
ownership. This investment has been accounted for based on the cost method and is included in Other Assets in
the accompanying Consolidated Balance Sheets at October 1, 2016 and October 3, 2015.
In addition to the Company’s ownership interest in NMR through Meadowlands Newmark, LLC, if casino
gaming is approved at the Meadowlands and NMR is granted the right to conduct said gaming, neither of which
can be assured, the Company shall be granted the exclusive right to operate the food and beverage concessions in
the gaming facility with the exception of one restaurant.
In conjunction with this investment, the Company, through a 97% owned subsidiary, Ark Meadowlands LLC
(“AM VIE”), also entered into a long-term agreement with NMR for the exclusive right to operate food and
beverage concessions serving the new raceway facilities (the “Racing F&B Concessions”) located in the new
raceway grandstand constructed at the Meadowlands Racetrack in northern New Jersey. Under the agreement,
NMR is responsible to pay for the costs and expenses incurred in the operation of the Racing F&B Concessions,
and all revenues and profits thereof inure to the benefit of NMR. AM VIE receives an annual fee equal to 5% of
the net profits received by NMR from the Racing F&B Concessions during each calendar year. At October 1,
2016, it was determined that AM VIE is a variable interest entity. However, based on qualitative consideration of
the contracts with AM VIE, the operating structure of AM VIE, the Company’s role with AM VIE, and that the
Company is not obligated to absorb any expected losses of AM VIE, the Company has concluded that it is not the
primary beneficiary and not required to consolidate the operations of AM VIE.
The Company’s maximum exposure to loss as a result of its involvement with AM VIE is limited to a receivable
from AM VIE’s primary beneficiary (NMR, a related party) which aggregated approximately $164,000 and
$272,000 at October 1, 2016 and October 3, 2015, respectively, and are included in Prepaid Expenses and Other
Current Assets in the Consolidated Balance Sheets.
On April 25, 2014, the Company loaned $1,500,000 to Meadowlands Newmark, LLC. The note bears interest at
3%, compounded monthly and added to the principal, and is due in its entirety on January 31, 2024. The note
may be prepaid, in whole or in part, at any time without penalty or premium. On July 13, 2016, the Company
made an additional loan to Meadowlands Newmark, LLC in the amount of $200,000. Such amount is subject to
the same terms and conditions as the original loan as discussed above. The principal and accrued interest related
to this note in the amounts of $1,814,659 and $1,566,997, are included in Investment In and Receivable From
New Meadowlands Racetrack in the Consolidated Balance Sheets at October 1, 2016 and October 3, 2015,
respectively.
In accordance with the cost method, our initial investment is recorded at cost and we record dividend income
when applicable, if dividends are declared. We review our Investment in NMR each reporting period to
determine whether a significant event or change in circumstances has occurred that may have an adverse effect on
its fair value, such as the defeat of the referendum for casino gaming in Northern New Jersey in November 2016
as discussed in Note 16.
As a result, we performed an assessment of the recoverability of our indirect Investment in NMR as of October 1,
2016 which included estimates requiring significant management judgment, include inherent uncertainties and
are often ·interdependent; therefore, they do not change in isolation. Factors that management estimated include,
among others, the probability of gambling being approved in Northern NJ which is the most heavily weighted
assumption and NMR obtaining a license to operate a casino, revenue levels, cost of capital, marketing spending,
tax rates and capital spending.
In performing this assessment, we estimated the fair value of our Investment in NMR using our best estimate of
these assumptions which we believe would be consistent with what a hypothetical marketplace participant would
use. The variability of these factors depends on a number of conditions, including uncertainty about future events
and our inability as a minority shareholder to control certain outcomes and thus our accounting estimates may
change from period to period. If other assumptions and estimates had been used when these tests were performed,
impairment charges could have resulted. As a result of the above, no impairment was deemed necessary as of
October 1, 2016.
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6. FIXED ASSETS
Fixed assets consist of the following:
Depreciation and amortization expense related to fixed assets for the years ended October 1, 2016 and October 3,
2015 was $4,490,000 and $4,399,000, respectively.
Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.
Periodically it is concluded that certain properties have become impaired based on their existing and anticipated
future economic outlook in their respective markets. In such instances, we may impair assets to reduce their
carrying values to fair values. Estimated fair values of impaired properties are based on comparable valuations,
cash flows and/or management judgment. No impairment charges were necessary for the years ended October 1,
2016 and October 3, 2015.
7.
INTANGIBLE ASSETS
Intangible assets consist of the following:
(a)
Purchased leasehold rights arose from acquiring leases and subleases of various restaurants.
Amortization expense related to intangible assets for the years ended October 1, 2016 and October 3, 2015 was
$63,000 and $16,000, respectively. Amortization expense for each of the next five years will be $63,000.
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(In thousands)Land and building9,002$ 4,800$ Leasehold improvements43,402 43,960 Furniture, fixtures and equipment36,062 35,806 Construction in progress482 27 88,948 84,593 Less: accumulated depreciation and amortization59,402 56,789 29,546$ 27,804$ October 1,2016October 3,2015(In thousands)Purchased leasehold rights (a)2,737$ 2,737$ Noncompete agreements and other 303 213 3,040 2,950 Less accumulated amortization2,514 2,451 Total intangible assets526$ 499$ October 1,2016October 3,2015
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
Two subsidiaries of the Company (“the Ark Subsidiaries”), which operate food courts on Federally protected
Indian land, had been involved in litigation with the state in which they operate, whereby the state attempted to
collect commercial rent tax from the Ark Subsidiaries. The Company had continued to accrue such taxes as the
litigation worked its way through the courts. During July 2016, the state agreed to the entry of consent judgments
in favor of the Ark Subsidiaries holding that the state is constitutionally prohibited from taxing rentals of Indian
land. In connection with this agreement, the Company reversed the accrual of these liabilities in the amount of
$945,000 during the three months ended July 2, 2016. In addition, the Company received a refund of previously
paid amounts in the amount of $157,000 in August 2016 related to the above matter. Such amounts are included
in the Consolidated Statement of Income for the year ended October 1, 2016 as a reduction of Occupancy
Expenses.
9. NOTES PAYABLE – BANK
On February 25, 2013, the Company issued a promissory note to Bank Hapoalim B.M. (the “BHBM”) for
$3,000,000. The note bore interest at LIBOR plus 3.5% per annum, and was payable in 36 equal monthly
installments of $83,333, commencing on March 25, 2013. On February 24, 2014, in connection with the
acquisition of The Rustic Inn, the Company borrowed an additional $6,000,000 from BHBM under the same
terms and conditions as the original loan which was consolidated with the remaining principal balance from the
original borrowing at that date. The new loan is payable in 60 equal monthly installments of $134,722, which
commenced on March 25, 2014, and matures February 24, 2019. As of October 1, 2016, the outstanding balance
of this note payable was approximately $3,907,000.
On October 22, 2015, in connection with the acquisition of Shuckers, the Company issued a promissory note to
BHBM for $5,000,000. The note bears interest at LIBOR plus 3.5% per annum, and is payable in 60 equal
monthly installments of $83,333, commencing on November 22, 2015, and matures October 21, 2020. As of
October 1, 2016, the outstanding balance of this note payable was approximately $4,084,000.
On October 22, 2015, in connection with the Shuckers transaction, the Company also entered into a credit
agreement (the “Revolving Facility”) with BHBM which expires on October 21, 2017 and provides for total
availability of the lesser of (i) $10,000,000 and (ii) $20,000,000 less the then aggregate amount of all
indebtedness and obligations to BHBM. Borrowings under the Revolving Facility will be evidenced by a
promissory note (the “Revolving Note”) in favor of BHBM and will be payable over five years with interest at an
annual rate equal to LIBOR plus 3.5% per year. As of October 1, 2016, no additional amounts were outstanding
under the Revolving Facility.
Deferred financing costs incurred in connection with the Shuckers transaction in the amount of $130,585 are
being amortized over the life of the agreements on a straight line basis. Amortization expense of $43,075 for the
year ended October 1, 2016 is included in interest expense.
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October 1,October 3,20162015(In thousands)Sales tax payable942$ 992$ Accrued wages and payroll related costs2,495 1,832 Customer advance deposits4,077 3,967 Accrued occupancy and other operating expenses3,041 3,541 10,555$ 10,332$
Borrowings under the Revolving Facility and both of the above promissory notes, are secured by all tangible and
intangible personal property (including accounts receivable, inventory, equipment, general intangibles,
documents, chattel paper, instruments, letter-of-credit rights, investment property, intellectual property and
deposit accounts) and fixtures of the Company.
The loan agreements provide, among other things, that the Company meet minimum quarterly tangible net worth
amounts, as defined, maintain a fixed charge coverage ratio of not less than 1.1:1 and minimum annual net
income amounts, and contain customary representations, warranties and affirmative covenants. The agreements
also contain customary negative covenants, subject to negotiated exceptions, on liens, relating to other
indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in
ownership. The Company was in compliance with all debt covenants as of October 1, 2016.
Long-term debt consists of the following:
As of October 1, 2016, the aggregate amounts of notes payable maturities are as follows:
10. COMMITMENTS AND CONTINGENCIES
Leases — The Company leases its restaurants, bar facilities, and administrative headquarters through its
subsidiaries under terms expiring at various dates through 2033. 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 and in one instance based on
profits.
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October 1,October 3,20162015Promissory Note - Rustic Inn purchase3,907$ 5,524$ Promissory Note - Shuckers purchase4,084 - 7,991 5,524 Less: Current maturities(2,617) (1,617) Less: Unamortized deferred financing costs(53) - Long-term debt5,321$ 3,907$ (In thousands)20172,617$ 20182,617 20191,674 20201,000 202183 7,991$
As of October 1, 2016, future minimum lease payments under noncancelable leases are as follows:
In connection with certain of the leases included in the table above, the Company obtained and delivered
irrevocable letters of credit in the aggregate amount of approximately $388,000 as security deposits under such
leases.
Rent expense was approximately $13,791,000 and $13,055,000 for the fiscal years ended October 1, 2016 and
October 3, 2015, respectively. Contingent rentals, included in rent expense, were approximately $4,382,000 and
$4,211,000 for the fiscal years ended October 1, 2016 and October 3, 2015, respectively.
Legal Proceedings — In the ordinary course its business, the Company is a party to various lawsuits arising from
accidents at its restaurants and worker’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. Management believes, based in part on the advice
of counsel, that the ultimate resolution of these matters will not have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash flows.
Share Repurchase Plan — On July 5, 2016, the Board of Directors authorized a share repurchase program
authorizing management to purchase up to 500,000 shares of the Company’s common stock during the next
twelve months. Any repurchase under the program will be effected in compliance with Rule 10b-18 under the
Securities Exchange Act of 1934 “Purchases of Certain Equity Securities by the Issuer and Others”, funded using
the Company’s working capital and be based on management’s evaluation of market conditions and other factors.
No repurchases were made for the year ended October 1, 2016.
11. STOCK OPTIONS
The Company has options outstanding under two stock option plans, the 2004 Stock Option Plan (the “2004
Plan”) and the 2010 Stock Option Plan (the “2010 Plan”), which was approved by shareholders in the second
quarter of 2010. Effective with this approval, the Company terminated the 2004 Plan. This action terminated the
400 authorized but unissued options under the 2004 Plan, but it did not affect any of the options previously issued
under the 2004 Plan. Options granted under the 2004 Plan 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 ten years after the date of
grant. Options granted under the 2010 Plan 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 ten years after the date of grant.
During the year ended October 3, 2015, options to purchase 136,500 shares of common stock at an exercise price
of $29.60 per share expired unexercised and options to purchase 3,000 shares of common stock at an exercise
price of $22.50 were cancelled.
On April 5, 2016, the shareholders of the Company approved the 2016 Stock Option Plan and the Section 162(m)
Cash Bonus Plan. Under the 2016 Stock Option Plan, 500,000 options were authorized for future grant and are
exercisable at prices at least equal to the fair market value of such stock on the dates the options were granted.
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AmountFiscal Year(In thousands)201710,056$ 20189,694 20198,881 20208,003 20217,042 Thereafter41,492 Total minimum payments85,168$
The options expire ten years after the date of grant. Under the Section 162(m) Cash Bonus Plan, compensation
paid in excess of $1,000,000 to any employee who is the chief executive officer, or one of the three highest paid
executive officers on the last day of that tax year (other than the chief executive officer or the chief financial
officer) will meet certain “performance-based” requirements of Section 162(m) and the related IRS regulations in
order for it to be tax deductible.
No options were granted during the year ended October 1, 2016. The following table summarizes stock option
activity under all plans:
Compensation cost charged to operations for the fiscal years ended October 1, 2016 and October 3, 2015 for
share-based compensation programs was approximately $286,000 and $426,000, respectively. The compensation
cost recognized is classified as a general and administrative expense in the Consolidated Statements of Income.
As of October 1, 2016, there was no unrecognized compensation cost related to unvested stock options.
The following table summarizes information about stock options outstanding as of October 1, 2016:
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Weighted Weighted AverageAverageExerciseExerciseSharesPriceSharesPriceOutstanding, beginning of year523,800 20.29$ 704,161 21.66$ Options: Granted- - Exercised(5,192) 16.26$ (40,861) 12.84$ Canceled or expired- (139,500) 29.36$ Outstanding and expected to vest, end of year518,608 20.33$ 1,979,232$ 523,800 20.29$ 2,242,140$ Exercisable, end of year518,608 20.33$ 1,979,232$ 422,300 19.76$ 2,191,390$ Weighted average remaining contractual life5.1 Years5.5 YearsShares available for future grant500,000 43,000 Aggregate Intrinsic ValueAggregate Intrinsic Value20162015Range of Exercise PricesNumber of SharesWeighted Average Exercise PriceWeighted Average Remaining contractual life (in years)$12.0466,000 12.04$ 2.6 $14.40160,800 14.40$ 5.7 $22.50201,808 22.50$ 7.7 $32.1590,000 32.15$ 0.2 518,608 20.33$ 5.1 Options Outstanding and Exercisable
12. INCOME TAXES
The provision for income taxes attributable to continuing operations consists of the following:
The effective tax rate differs from the U.S. income tax rate as follows:
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Year Ended(In thousands)Current provision: Federal778$ 1,684$ State and local192 699 970 2,383 Deferred provision (benefit): Federal915 342 State and local213 (129) 1,128 213 2,098$ 2,596$ October 1, 2016October 3, 2015Year Ended(In thousands)Provision at Federal statutory rate (34% in 2016 and 2015)2,580$ 3,056$ State and local income taxes, net of tax benefits326 346 Tax credits(611) (583) Income attributable to non-controlling interest(501) (341) Changes in tax rates9 67 Other295 51 2,098$ 2,596$ October 1, 2016October 3, 2015
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets
and liabilities are as follows:
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that
the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income. In the assessment of the valuation allowance, appropriate consideration was
given to all positive and negative evidence including recent operating profitability, forecasts of future earnings and
the duration of statutory carryforward periods. The Company recorded a valuation allowance of $342,000 and
$223,000 as of October 1, 2016 and October 3, 2015, respectively, attributable to state and local net operating loss
carryforwards which are not realizable on a more-likely-than-not basis. During fiscal 2016, the Company’s
valuation allowance increased by approximately $119,000 as the Company determined that certain state net
operating losses became unrealizable on a more-likely-than-not basis.
As of October 1, 2016, the Company has New York State net operating losses of approximately $19,961,000 and
New York City net operating loss carryforwards of approximately $18,328,000 that expire through fiscal 2036.
During fiscal 2015, certain equity compensation awards expired unexercised. As such, the Company reversed the
related deferred tax asset in the amount of approximately $548,000 as a charge to Additional Paid-in Capital as
there was a sufficient pool of windfall tax benefit available. During fiscal 2016, the Company recorded a credit to
Additional Paid-in Capital of $86,000 related to equity compensation.
A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding interest and penalties
is as follows:
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(In thousands)Long-term deferred tax assets (liabilities): State net operating loss carryforwards3,179$ 3,069$ Operating lease deferred credits772 793 Depreciation and amortization(256) 259 Deferred compensation986 794 Partnership investments(709) (220) Prepaid expenses(444) (201) Other230 182 Total long-term deferred tax assets3,758 4,676 Valuation allowance(342) (223) Total net deferred tax assets3,416$ 4,453$ October 3, 2015October 1, 2016October 1,October 3,20162015(In thousands)Balance at beginning of year307$ 162$ Additions based on tax positions taken in current and prior years105 145 Settlements(46) - Balance at end of year366$ 307$
The entire amount of unrecognized tax benefits if recognized would reduce our annual effective tax rate. As of
October 1, 2016, the Company accrued approximately $284,000 of interest and penalties. The Company does not
expect its unrecognized tax benefits to change significantly over the next 12 months. Inherent uncertainties exist
in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various
jurisdictions’ tax court systems.
The Company files tax returns in the U.S. and various state and local jurisdictions with varying statutes of
limitations. The 2013 through 2016 fiscal years remain subject to examination by the Internal Revenue Service
most state and local tax authorities.
13. OTHER INCOME
Other income (expense) consists of the following:
14. INCOME PER SHARE OF COMMON STOCK
A reconciliation of the numerators and denominators of the basic and diluted per share computations for the fiscal
years ended October 1, 2016 and October 3, 2015 follows:
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Year Ended(In thousands)Licensing fees166$ 185$ Management fees203 - Other rentals3 16 Loss on disposal of assets(16) - Other74 37 430$ 238$ October 1, 2016October 3, 2015Net Income Attributable to Ark Restaurants Corp.(Numerator)Shares(Denominator)Per ShareAmountYear ended October 1, 2016 Basic EPS4,030$ 3,418 1.18$ Stock options- 89 (0.02) Diluted EPS 4,030$ 3,507$ 1.15$ Year ended October 3, 2015 Basic EPS5,390$ 3,393 1.59$ Stock options- 116 (0.05) Diluted EPS 5,390$ 3,509 1.54$ (In thousands, except per share amounts)
For the year ended October 1, 2016, options to purchase 66,000 shares of common stock at a price of $12.04,
options to purchase 160,800 shares of common stock at a price of $14.40 and options to purchase 201,808 shares of
common stock at a price of $22.50 per were included in diluted earnings per share. Options to purchase 90,000
shares of common stock at a price of $32.15 per share were not included in diluted earnings per share as their
impact would be anti-dilutive.
For the year ended October 3, 2015, options to purchase 66,000 shares of common stock at a price of $12.04,
options to purchase 164,800 shares of common stock at a price of $14.40 and options to purchase 203,000 shares
of common stock at a price of $22.50 per were included in diluted earnings per share. Options to purchase
90,000 shares of common stock at a price of $32.15 per share were not included in diluted earnings per share as
their impact would be anti-dilutive.
15. RELATED PARTY TRANSACTIONS
Employee receivables totaled approximately $453,000 and $485,000 at October 1, 2016 and October 3, 2015,
respectively. Such amounts consist of loans that are payable on demand and bear interest at the minimum
statutory rate (0.66% at October 1, 2016 and 0.54% at October 3, 2015).
16. SUBSEQUENT EVENTS
On November 18, 2016, Ark Jupiter RI, LLC (“Ark Jupiter”), a wholly-owned subsidiary of the Company,
entered into a ROFR Purchase and Sale Agreement (the “ROFR”) with SCFRC-HWG, LLC, the landlord (the
“Seller”) to purchase the land and building in which the Company operates its Rustic Inn location in Jupiter,
Florida. The Seller had entered into a Purchase and Sale Agreement with a third party to sell the premises;
however, Ark Jupiter’s lease provided the Company with a right of first refusal to purchase the property. Ark
Jupiter exercised the ROFR on October 4, 2016 and made a ten (10%) percent deposit on the purchase price of
approximately Five Million Two Hundred Thousand Dollars ($5,200,000). Concurrent with the execution of the
ROFR, the Ark Jupiter entered into a Purchase and Sale Agreement with 1065 A1A, LLC to sell this same
property for Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000). In connection with the sale, Ark
Jupiter and 1065 A1A, LLC have entered into a temporary lease and sub-lease arrangement which expires April
30, 2017 at which time the Company expects to vacate the space.
On November 30, 2016, the Company, through newly formed, wholly-owned subsidiaries, acquired the assets of
the Original Oyster House, Inc., a restaurant and bar located in the City of Gulf Shores, Baldwin County,
Alabama and the related real estate and the Original Oyster House II, Inc., a restaurant and bar located in the City
of Spanish Fort, Baldwin County, Alabama and the related real estate and an adjacent retail shopping plaza. The
total purchase price was for $10,750,000 plus inventory. The acquisition will be accounted for as a business
combination and was financed with a bank loan from the Company’s existing lender in the amount of $8,000,000
and cash from operations.
The voter referendum for casino gaming in Northern New Jersey was defeated in November 2016. State law
prohibits the issue from being put on the ballot before voters for the following two years. In connection with
NMR’s restructuring of an existing loan which comes due on June 30, 2018, and to extend the loan through
December 2021, the Company expects to fund its proportionate share of an anticipated $3 million capital call in
January 2017 rather than having its interest diluted. On December 7, 2016, the Board of Directors declared a
quarterly dividend of $0.25 per share on the Company's common stock to be paid on January 3, 2017 to
shareholders of record at the close of business on December 20, 2016.
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CORPORATE INFORMATION
BOARD OF DIRECTORS
Michael Weinstein
Chairman and Chief Executive Officer
Robert J. Stewart
President, Chief Financial Officer and Treasurer
Vincent Pascal
Senior Vice President --- Senior Vice President and Chief Operating Officer
Paul Gordon
Senior Vice President --- Director of Las Vegas Operations
Marcia Allen
Chief Executive Officer, Allen & Associates
Bruce R. Lewin
Chairman and President, Continental Hosts, Ltd.
Steve Shulman
President, Managing Director, Hampton Group Inc.
Arthur Stainman
Senior Managing Director, First Manhattan Co.
Stephen Novick
Senior Advisor, Andrea and Charles Bronfman Philanthropies
EXECUTIVE OFFICES
AUDITORS
85 Fifth Avenue
New York, NY 10003
(212) 206-8800
TRANSFER AGENT
Continental Stock Transfer & Trust Company
17 Battery Place
New York, NY 10004
CohnReznick LLP
1212 Avenue of the Americas
New York, NY 10036
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