Ark
Restaurants
Corp.
2017 ANNUAL REPORT
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The Company
We are a New York corporation formed in 1983. As of the fiscal year ended September 30, 2017, we owned
and/or operated 20 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
September 30, 2017, five 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 in the Faneuil Hall Marketplace in Boston, Massachusetts, two are located on the east coast of
Florida and two are located on the gulf coast of Alabama.
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 September 30,
2017, 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); 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), Shuckers in Jensen Beach, Florida (2016) and two Original Oyster Houses, one in Gulf
Shores, Alabama and one in Spanish Fort, Alabama (2017).
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 Original Oyster House 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
September 30, 2017, including financial statements, exhibits and schedules thereto, to each of our
shareholders of record on February 13, 2018 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.
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February 15, 2018
Shareholders, Associates, and Friends of our Company,
This has been an active year of acquiring new assets, reimagining and renovating our 1,000 seat Sequoia,
Washington D.C. restaurant, selling our Jupiter, Florida property, and reconfiguring work schedules to
mitigate significant legislated increases in wages to tipped and non-tipped employees.
For fiscal 2017 the primary disruptor of EBITDA was the closure of Sequoia for a significant renovation. The
renovation was a requirement by a new landlord as a condition to obtaining a new 15-year term. Our lease
was due to expire in the later part of 2017. Sequoia operated successfully for the better part of 20 years but in
truth for the last several of those we opinioned that a contemporary makeover and the expansion of private
event space could spark new interest and increased revenues. The restaurant closed on January 1, 2017, and
fully reopened in the early fall. The closure was responsible for a $3.7 million negative impact on the
Company’s EBITDA. Basically, we took a restaurant with positive operating profits, closed it and incurred
losses during the construction period while maintaining the employment of a significant number of salaried
employees. Of Sequoia’s 1,000 seats more than half are outdoors. Permitting issues with the construction
delayed our targeted summer opening. We are hopeful that the “new Sequoia” will outperform the “old
Sequoia” and although the revenue from fourth quarter fiscal 2017 and first quarter fiscal 2018 are positive, it
is this coming summer and the marketing of our new event spaces that will determine whether we have
favorably ”transitioned” this asset. The capital allocation to accomplish this was considerable. Recent
transactions where we have purchased operations and the underlying buildings and land have traded at 5 to
5.5 multiples to trailing EBITDA. In 2016 Sequoia had $1.5 million cash flow. Certainly, extending that cash
flow with a new 15-year lease term had value. Since Sequoia operates under a lease where we do not take
ownership of the underlying real estate our assessment was that this cash flow should trade at a discount from
transactions where we become owners. If we concluded retaining $1.5 million cash flow as an ultimate goal,
the capital allocated should have been $6 to $7 million. However, we had confidence that there was
incremental cash flow in reconfiguring and upgrading the design and invested at a higher multiple.
During the first quarter of fiscal 2017, we acquired two properties in Alabama along with their buildings and
land. The deal was predicated on their trailing $2 million of operating profit. These properties were in our
portfolio for ten months of fiscal 2017 and local management performed well with operating profit near our
expectations. These restaurants join two of our Florida properties, Shuckers in Jensen Beach and Rustic Inn
Ft. Lauderdale as restaurants where we are our own landlord. Shuckers and Rustic continue to outperform the
base operating years in which they were acquired. The success of these properties encouraged us to purchase
the Alabama restaurants. Among the positives of owning the real estate is the elimination of negotiations for
extended leases, a potential disruptor to reliable EBITDA, which over the years has played havoc on our
Company. The underlying land and buildings are assets that can be sold if we find ourselves with
disappointing operating metrics. This is not the case with leased properties where market leases attached to
unprofitable restaurants have little attraction. Proof of this came with our Rustic Inn expansion into Jupiter,
Florida. A right of first refusal to buy the property was triggered when the owner of the property contracted to
sell to a third party. We exercised our option and flipped the property for a $3 million profit before expenses
of the transaction. At the time this operation was losing money. If we had not had the opportunity with the
real estate there would have been little residual value to our lease and improvements. The $3 million gain on
the sale was greater than operating losses from the restaurant's inception.
We continue to be battered with legislated minimum wage increases. We are doing the best we can to
maneuver but a tight labor market complicates our efforts. I would think it is a condition problematic for
most retailers and we are highly aware that service staff that prize customers are invaluable. Retention of
these employees is a priority and restructuring their schedules is as much an art form as a negotiation. As
mentioned in last year’s letter we have found some revenue enhancements to offset wage increases, but
increased pricing in menu items is not a preference even though signals from the economy indicate there
should be strengthening demand. We feel comfortable with our “value to quality” proposition and although
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tempted we are at our best when we recognize that any price increase to gain an edge could bring revenue
risk. Presently the Governor of New York is flirting with additional changes to minimum wage that would
further disadvantage ownership. On the other side of this issue is consideration by the federal labor
department to allow a reallocation of tips now earmarked only to tipped employees to include those non-
tipped hourly employees. Conceivably this could help back of house employees with a new income source
other than wages and take some pressure off ownership. Certainly, we would welcome this legislation, but
implementing the allocation of a percentage of tips away from tipped employees will present a significant
challenge.
We have positive trends that should favor fiscal 2018. Our restaurants’ revenue lines continue to do well with
few exceptions. Our Florida and Las Vegas properties are benefitting from increased customer counts. The
detour which challenged arriving customers at Rustic Inn, Ft. Lauderdale has been resolved with the opening
of a new bridge. We recently purchased an adjacent property to Rustic to expand parking which has eased
access for our customers. Later this year we intend to increase capacity adding a new raw bar to accommodate
an ever-present wait time. Last year we had weather issues at all venues and hopefully will not see a repeat or
worsening of that scenario. Milder weather, especially in the early spring, would be a benefit. Add to this mix
a full year for the Alabama properties, and the elimination of Jupiter’s operating loss. We can only speculate
as to the impact Sequoia could have on EBITDA. Last fiscal year’s loss for Sequoia will be eliminated, but it
would be a disappointment and more important a misallocation of capital if we did not better the operating
income this restaurant achieved in fiscal 2016.
Our balance sheet liquidity has been challenged. We allocated significant capital to our acquisitions and the
renovation of Sequoia. We are a company that historically had little debt and strong ratios of liquidity. This
changed this past year as we did not want to pass on opportunity. We now have in place reasonably favorable
credit facilities to take us through this period. Our cash pump opens in the warmer months.
We retain 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. 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. We believe that the expansion of gaming in Philadelphia and the potential for gaming in down state
New York will exacerbate the situation for New Jersey. The state needs new sources of revenue and a logical
contender would be to bring casino gaming to the northern part of the state. The failure of a 2016 referendum
to allow for this does not dissuade our continued confidence in the eventuality. 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 ).
We will pursue additional opportunities to acquire restaurants where the real estate comes along with the deal.
This is our preference, although we will not ignore strong cash flows with favorable long-term underlying
leases. We do have the capacity to make a further acquisition if the right property comes to our attention. In
the past we have been successful at leasing spaces and developing restaurant concepts. High rents, elevated
construction costs and our conservative nature have effectively limited these opportunities. Whether we
acquire or build we are best suited to large spaces where we can do outsized volumes. We have proved adept
at delivering good quality at fair prices in these settings.
Again, this would not be possible without the support of all who work with this company. Their efforts
translate into customer satisfaction and our success.
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
Nancy Alvarez, Controller
Nicole Calix Coy, Director of Human Resources – Las Vegas Operations
Linda Clous, Director of Facilities Management
Luis Gomes, Director of Purchasing – Las Vegas Operations
Marilyn Guy, Director of Human Resources
Jeff Isaacson, Vice President – Beverage Operations
Donna McCarthy, Director of Operations – Atlantic City
Teresita Mendoza, Controller – Las Vegas Operations
Veronica Mijelshon, Director of Architecture and Design
Andrea O’Brien, Director of Tour and Travel
John Oldweiler, Director of Purchasing
Evyette Ortiz, Director of Marketing
Sonal Shah, General Counsel and Secretary
Brisa Shoshani, Executive Assistant – Las Vegas Operations
Craig Tribus, Director of Operations- Las Vegas Operations
Welner Villatoro, Director of Maintenance – Las Vegas Operations
Executive Chefs
Jerome Lingle, Las Vegas, NV
Vico Ortega, New York, NY
Sergio Soto, Atlantic City, NJ
Restaurant General Managers-New York
Dianne Ashe-Giovannone, El Rio Grande
Ashlee Dean, Southwest Porch
Ana Harris, Robert
Bridgeen Rice, Clyde Frazier’s Wine and Dine
Donna Simms, Bryant Park Grill
Restaurant General Managers-Washington D.C.
Gregory Thompson, Thunder Grill
Maurizio Reyes, Sequoia
Restaurant General Manager-Atlantic City, NJ
Michelle Fratticcioli, Gallagher’s Steakhouse and Gallagher’s Burger Bar
Jason Kowerski, Broadway Burger Bar
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Restaurant General Manager – Meadowlands, NJ
Jennifer Jordan, Victory Sports Bar & Club
Restaurant General Managers-Las Vegas
Ivonne Escobedo, Village Streets
Staci Green, Yolos Mexican Grill
John Hausdorf, Las Vegas Room Service
Geri Ohta, Director of Sales and Catering
Mary Massa, Gonzalez y Gonzalez
Mary Marques, Gallagher’s Steakhouse
Kelly Rosas, America
Jeff Stein, Broadway Burger Bar & Grill
Restaurant General Manager-Boston
Patricia Reyes, Durgin-Park
Restaurant General Managers-Florida
Michael Diascro, Rustic Inn
Edgar Gonzalez-Pratt, Hollywood Food Court
Darvin Pratts, Tampa Food Court
Robert Rae, Shuckers
Restaurant General Manager-Foxwoods
Matilda Santana, Lucky 7
Restaurant General Managers- Alabama
Jim Harrison, Original Oyster House- Spanish Fort
Bud Morris, Original Oyster House- Gulf Shores
Restaurant Chef- Boston
Roberto Reyes- Durgin Park
Restaurant Chefs-New York
Gonzalo Colin, Robert
Armando Cortes, Clyde Frazier’s Wine and Dine
Fermin Ramirez, El Rio Grande
Gadi Weinreich, Bryant Park Grill
Restaurant Chefs-Washington D.C.
Fanor Baldarrama, Sequoia
Michael Foo, Thunder Grill
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Restaurant Chefs-Las Vegas
Bernard Camat, Gallagher’s Steakhouse
Brandon Greenwood, Broadway Burger Bar & Grill
Richard Harris, America
Richard Harris, Banquets
Jerome Lingle, Employee Dining Room
Rafael Medina, Yolos Mexican Grill
Sergio Salazar, Gonzalez y Gonzalez
Restaurant Chefs-Florida
Francisco Chinicle and Jordanys Santana, Hollywood Food Court
Ralph Formisano, Shuckers
Jason Lemon, Rustic Inn – Dania Beach, FL
Nolberto Vernal, Tampa Food Court
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
As of September 30, 2017, the Company owned and operated 20 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 Statement of Income for the year ended September 30, 2017 includes
revenues and operating income of approximately $11,804,000 and $1,243,000, respectively, related to the
Oyster House properties on the gulf coast of Alabama, which were acquired on November 30, 2016. 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 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 years ended September 30, 2017 and October 1, 2016 included 52 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 $7,008,000 for the year ended September 30, 2017 decreased 10.4%
compared to operating income of $7,824,000 for the year ended October 1, 2016. This decrease resulted
primarily from: (i) increased losses in the amount of $3,915,000 related to Sequoia in Washington, DC which
was closed for renovation from January 4, 2017 through June 23, 2017, (ii) the reversal in the prior year
ended October 1, 2016 of commercial rent tax liabilities in the amount of $945,000, (iii) the correction of an
immaterial error in the prior year ended October 1, 2016 related to an overstatement of a rent liability in the
amount of $261,000, and (iv) professional fees incurred in connection with our acquisition of the Oyster
House properties, partially offset by: (a) operating income of $1,243,000 related to The Oyster House
properties in Gulf Shores, Alabama (which were acquired on November 30, 2016), (b) the recognition of a
gain in the amount of $1,637,000 in connection with the sale of the real estate underlying our Rustic Inn,
Jupiter, FL property, and (c) overall better performance at most of our other properties.
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The following table summarizes the significant components of the Company’s operating results for the years
ended September 30, 2017 and October 1, 2016, respectively:
Revenues
During the Company’s year ended September 30, 2017 (“fiscal 2017”), revenues increased 2.2% compared to
the year ended October 1, 2016 (“fiscal 2016”). This increase resulted primarily from: (i) revenues related to
The Oyster House properties in Gulf Shores, Alabama (which were acquired on November 30, 2016) and (ii)
the same-store sales impacts discussed below, offset by the closure for renovation of Sequoia in Washington,
DC on January 4, 2017 and the permanent closures of Center Café in Washington, DC and the V Bar in Las
Vegas as a result of lease expirations.
Food and Beverage Same-Store Sales
On a Company-wide basis, same store food and beverage sales decreased 3.3% for the year ended September
30, 2017 as compared to the year ended October 1, 2016 as follows:
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September 30,2017October 1,2016$%REVENUES: Food and beverage sales151,196$ 148,479$ 2,717$ 1.8% Other revenue2,681 2,103 578 27.5%Total revenues153,877 150,582 3,295 2.2%COSTS AND EXPENSES: Food and beverage cost of sales41,597 39,545 2,052 5.2% Payroll expenses53,074 50,718 2,356 4.6% Occupancy expenses17,100 16,515 585 3.5% Other operating costs and expenses20,690 19,719 971 4.9% General and administrative expenses11,504 11,708 (204) -1.7% Depreciation and amortization4,541 4,553 (12) -0.3%Total costs and expenses148,506 142,758 5,748 4.0%RESTAURANT OPERATING INCOME5,371 7,824 (2,453) -31.4% Gain on sale of Rustic Inn, Jupiter1,637 - 1,637 N/AOPERATING INCOME7,008$ 7,824$ (816)$ -10.4%VarianceYear Ended(in thousands)
Same-store sales in Las Vegas increased 3.9% primarily as a result of increased traffic near the properties
where we operate our restaurant in connection with the opening of the T-Mobile Arena nearby. Same-store
sales in New York decreased 1.1%, primarily as a result of poor weather conditions during the months in
which our properties with outdoor seating areas are open. Same-store sales in Washington, DC, which
excludes Center Café which closed in February 2016, decreased 38.9% as a result of the closure of Sequoia
on January 4, 2017 for renovation. Same-store sales in Atlantic City increased 7.9% primarily due to
increased traffic at the properties in which we operate our restaurants as other hotels closed. Same-store sales
in Boston decreased 10.1% primarily as a result of decreased traffic at Faneuil Hall Marketplace where our
property is located. Same-store sales in Connecticut decreased 2.9% due to declining traffic at the Foxwoods
Resort and Casino where our properties are located. Same-store sales in Florida decreased 3.2% reflecting
decreased traffic at The Rustic Inn in Dania Beach, FL in the first three quarters of fiscal 2017 which seemed
to stabilize in the fourth quarter of fiscal 2017 due to a road construction project started in the second quarter
of fiscal 2016 by the local municipality. Other food and beverage sales consist of sales related to new
restaurants opened or acquired during the applicable period (e.g., The Oyster House properties), 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 2017 as compared to fiscal 2016 is primarily due to an increase in
purchase service fees. 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, as well
as license fees, property management fees and other rentals.
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September 30,2017October 1,2016$%Las Vegas45,852$ 44,130$ 1,722$ 3.9%New York39,734 40,176 (442) -1.1%Washington, DC7,982 13,066 (5,084) -38.9%Atlantic City, NJ7,536 6,984 552 7.9%Boston3,235 3,597 (362) -10.1%Connecticut2,156 2,220 (64) -2.9%Florida26,467 27,331 (864) -3.2% Same store sales132,962 137,504 (4,542)$ -3.3%Other18,234 10,975 Food and beverage sales151,196$ 148,479$ Year EndedVariance(in thousands)
Costs and Expenses
Costs and expenses for the years ended September 30, 2017 and October 1, 2016 were as follows (in
thousands):
The increase in food and beverage costs as a percentage of total revenues for the year ended September 30,
2017 compared to the same period of last year are primarily the result of higher food costs as a percentage of
sales associated with The Oyster House properties, which were acquired on November 30, 2016, seafood
restaurants which, consistent with the industry, operate at a higher food cost structure.
Payroll expenses as a percentage of total revenues for the year ended September 30, 2017 increased slightly as
compared to the same period of last year primarily as a result of pre-opening and training costs related to the
reopening of Sequoia.
Occupancy expenses as a percentage of total revenues, excluding the impact in the year ended October 1,
2016 of the reversal of commercial rent tax liabilities in the amount of $945,000 and the correction of an
immaterial error related to an overstatement of a rent liability in the amount of $261,000, decreased as
compared to the same period of last year as a result of higher sales at properties where rents are relatively
fixed or where the Company owns the premises at which the property operates (The Rustic Inn in Dania
Beach, FL, Shuckers in Jensen Beach, FL and The Oyster House properties in Gulf Shores, Alabama) partially
offset by rent increases at our other properties.
Other operating costs and expenses as a percentage of total revenues for fiscal 2017 increased slightly as
compared to fiscal 2016 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 2017 decreased as compared to the same period of last year primarily as
a result of lower headcount, partially offset by transaction costs of approximately $187,000 incurred in
connection with the purchase of the Oyster House properties.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for uncertain tax positions reflect
management’s best estimate of current and future taxes to be paid. We are subject to income tax in numerous
state taxing jurisdictions. Significant judgement and estimates are required in the determination of
consolidated income tax expense. The provision for income taxes reflects federal income taxes calculated on
a consolidated basis and state and local income taxes which are calculated on a separate entity basis. Most of
the restaurants we own or manage are owned or managed by a separate legal entity.
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$%Food and beverage cost of sales41,597$ 27.0%39,545$ 26.3%2,052$ 5.2%Payroll expenses53,074 34.5%50,718 33.7%2,356 4.6%Occupancy expenses17,100 11.1%16,515 11.0%585 3.5%Other operating costs and expenses20,690 13.4%19,719 13.1%971 4.9%General and administrative expenses11,504 7.5%11,708 7.8%(204) -1.7%Depreciation and amortization4,541 3.0%4,553 3.0%(12) -0.3%148,506$ 142,758$ 5,748$ % to Total Revenues% to Total RevenuesIncreaseYear Ended October 1, 2016(Decrease)Year Ended September 30, 2017
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 $831,000 and $854,000 in fiscal 2017 and 2016,
respectively.
On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. The new tax legislation contains
several key tax provisions including the reduction of the corporate income tax rate to 21% effective January 1,
2018 as well as a variety of other changes including the limitation of the tax deductibility of interest expense,
acceleration of expensing of certain business assets and reductions in the amount of executive pay that could
qualify as a tax deduction. ASC 740 requires us to recognize the effect of the tax law changes in the period of
enactment. However, the SEC staff issued SAB 118 which will allow us to record provisional amounts
during a measurement period which is similar to the measurement period used when accounting for business
combinations. We will continue to assess the impact of the recently enacted tax law on our business and our
consolidated financial statements.
Liquidity and Capital Resources
Our primary source of capital has been cash provided by operations and, in recent years, bank and other
borrowings to finance specific transactions, acquisitions and large remodeling projects. We utilize cash
generated from operations to fund the cost of developing and opening new restaurants and smaller remodeling
projects of existing restaurants we own.
Net cash provided by operating activities for fiscal 2017 increased to $10,350,000 as compared to $7,613,000
provided by operations in fiscal 2016. This increase was attributable to changes in net working capital
primarily related to accounts receivable, prepaid, refundable and accrued income taxes and accounts payable
and accrued expenses.
Net cash used in investing activities for fiscal 2017 was $14,641,000 and resulted primarily from purchases of
fixed assets at existing restaurants, costs associated with the renovation of Sequoia and the cash portion of the
purchase of The Oyster House properties in the amount of $3,043,000, partially offset by the net proceeds in
the amount of $2,474,000 from the sale of The Rustic Inn in Jupiter, Florida
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 financing activities for fiscal 2017 of $1,542,000, resulted primarily from the payment of
dividends, principal payments on notes payable and distributions to non-controlling interests, offset by
borrowings under the credit facility.
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Net cash used in financing activities for fiscal 2016 of $7,064,000 resulted primarily from the payment of
dividends, principal payments on notes payable and distributions to non-controlling interests.
The Company had a working capital deficiency of $16,072,000 at September 30, 2017 as compared to
$658,000 at October 1, 2016. Such increase is primarily the result of our purchase of The Oyster House
properties in November 2016 and costs associated with the renovation of our Sequoia property in
Washington, DC. We believe that our existing cash balances, current banking facilities and cash provided by
operations will be sufficient to meet our liquidity and capital spending requirements at least through the next
12 months from the filing date. In addition, the Company is in the process of increasing the amounts
available under the existing credit facility and refinancing outstanding borrowings over longer repayment
periods. Such refinancing is expected to be completed in the second fiscal quarter of 2018.
On January 3, 2017, April 3, 2017, July 5, 2017 and October 4, 2017, 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 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 was accounted for
as a business combination and was financed with a bank loan in the amount of $5,000,000 and cash from
operations.
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 an adjacent retail shopping plaza 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. The total purchase price was for $10,750,000 plus inventory of approximately $293,000. The
acquisition is 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 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.
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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 effective ownership interest in NMR of 7.4%, subject to
dilution. In 2015, the Company invested an additional $222,000 in NMR with no change in ownership. In
February 2017 the Company funded its proportionate share ($222,000) of a $3,000,000 capital call bringing
its total investment to $5,108,000 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 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
Lease Expirations – 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.
The Company was advised by the landlord that it would have to vacate The Grill at Two Trees property at the
Foxwoods Resort and Casino in Ledyard, CT, which had a no rent lease. The closure of this property
occurred on January 1, 2017 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.
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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
comparable valuations, cash flows and/or management judgment.
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
September 30, 2017 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 New Jersey 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
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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
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 September 30, 2017, 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 September 30, 2017.
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.
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. 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 issues new shares upon the exercise of employee stock options.
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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 2017 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 October 3, 2015
through September 30, 2017 are as follows:
Calendar 2015
Fourth Quarter
Calendar 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar 2017
First Quarter
Second Quarter
Third Quarter
Low
$22.13
High
$24.45
20.01
20.00
22.18
20.10
22.65
24.02
22.00
22.95
23.70
24.10
24.25
26.35
25.99
24.75
As of December 18, 2017, there were 31 holders of record of our common stock and approximately an
additional 1,650 beneficial owners.
Dividend Policy
On December 7, 2015, March 1, 2016, June 2, 2016, September 7, 2016, December 7, 2016, March 1, 2017,
June 5, 2017 and September 6, 2017 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.
- 17 -
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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 September 30, 2017 and October 1, 2016, and the related consolidated statements of
income, changes in equity and cash flows for each of the years in the two-year period ended September 30,
2017. 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 September 30, 2017 and October 1,
2016, and the results of their operations and their cash flows for each of the years in the two-year period
ended September 30, 2017 in conformity with accounting principles generally accepted in the United States of
America.
/s/ CohnReznick LLP
Jericho, New York
December 29, 2017
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ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In Thousands, Except Per Share Amounts)September 30,2017October 1,2016ASSETSCURRENT ASSETS:Cash and cash equivalents (includes $363 at September 30, 2017 and $889 at October 1, 2016 related to VIEs)1,406$ 7,239$ Accounts receivable (includes $716 at September 30, 2017 and $429 at October 1, 2016 related to VIEs)3,353 3,750 Employee receivables399 453 Inventories (includes $22 at September 30, 2017 and $23 at October 1, 2016 related to VIEs)1,992 1,892 Prepaid and refundable income taxes (includes $226 at September 30, 2017 and $178 at October 1, 2016 related to VIEs)945 178 Prepaid expenses and other current assets (includes $63 at September 30, 2017 and $50 at October 1, 2016 related to VIEs)1,988 2,484 Total current assets10,083 15,996 FIXED ASSETS - Net (includes $6 at September 30, 2017 and $22 at October 1, 2016 related to VIEs)45,215 29,546 INTANGIBLE ASSETS - Net409 526 GOODWILL9,880 7,895 TRADEMARKS3,331 1,611 DEFERRED INCOME TAXES1,491 3,416 INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK6,979 6,701 OTHER ASSETS (includes $71 at September 30, 2017 and October 1, 2016 related to VIEs)2,679 2,564 TOTAL ASSETS80,067$ 68,255$ LIABILITIES AND EQUITYCURRENT LIABILITIES:Accounts payable - trade (includes $116 at September 30, 2017 and $114 at October 1, 2016 related to VIEs)4,750$ 2,876$ Accrued expenses and other current liabilities (includes $260 at September 30, 2017 and $238 at October 1, 2016 related to VIEs)10,176 10,555 Accrued income taxes- 606 Dividend payable857 - Borrowings under credit facility6,198 - Current portion of notes payable4,174 2,617 Total current liabilities26,155 16,654 OPERATING LEASE DEFERRED CREDIT (includes $51 at September 30, 2017 and $73 at October 1, 2016 related to VIEs)3,648 3,576 NOTES PAYABLE, LESS CURRENT PORTION, net of deferred financing costs7,824 5,321 TOTAL LIABILITIES 37,627 25,551 COMMITMENTS AND CONTINGENCIES EQUITY: Common stock, par value $.01 per share - authorized, 10,000 shares; issued and outstanding, 3,428 shares at September 30, 2017 and 3,423 shares at October 1, 2016 34 34 Additional paid-in capital12,639 12,942 Retained earnings27,771 27,158 Total Ark Restaurants Corp. shareholders' equity40,444 40,134 NON-CONTROLLING INTERESTS 1,996 2,570 TOTAL EQUITY 42,440 42,704 TOTAL LIABILITIES AND EQUITY80,067$ 68,255$ See notes to consolidated financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In Thousands, Except Per Share Amounts)September 30,2017October 1,2016REVENUES: Food and beverage sales151,196$ 148,479$ Other revenue2,681 2,103 Total revenues153,877 150,582 COSTS AND EXPENSES: Food and beverage cost of sales41,597 39,545 Payroll expenses53,074 50,718 Occupancy expenses17,100 16,515 Other operating costs and expenses20,690 19,719 General and administrative expenses11,504 11,708 Depreciation and amortization4,541 4,553 Total costs and expenses148,506 142,758 RESTAURANT OPERATING INCOME5,371 7,824 Gain on sale of Ark Jupiter RI, LLC1,637 - OPERATING INCOME7,008 7,824 OTHER (INCOME) EXPENSE: Interest expense753 416 Interest income(170) (180) Total other (income) expense, net583 236 INCOME BEFORE PROVISION FOR INCOME TAXES6,425 7,588 Provision for income taxes1,668 2,098 CONSOLIDATED NET INCOME4,757 5,490 Net income attributable to non-controlling interests(718) (1,460) NET INCOME ATTRIBUTABLE TO ARK RESTAURANTS CORP.4,039$ 4,030$ NET INCOME PER ARK RESTAURANTS CORP. COMMON SHARE: Basic1.18$ 1.18$ Diluted1.14$ 1.15$ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic3,424 3,418 Diluted3,531 3,507 Year EndedSee notes to consolidated financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED SEPTEMBER 30, 2017 AND OCTOBER 1, 2016(In Thousands, Except Per Share Amounts)SharesAmountBALANCE - 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 Net income- - - 4,039 - 4,039 718 4,757 Exercise of stock options5 - 72 - - 72 - 72 Tax benefit on exercise of stock options- - 14 - - 14 - 14 Change in excess tax benefits from stock-based compensation- - (389) - - (389) - (389) Distributions to non-controlling interests- - - - - - (1,292) (1,292) Dividends paid and accrued - $1.00 per share- - - (3,426) - (3,426) - (3,426) BALANCE - September 30, 20173,428 34$ 12,639$ 27,771$ -$ 40,444$ 1,996$ 42,440$ Additional Paid-In CapitalNon-controlling InterestsTotal Ark Restaurants Corp. Shareholders' EquitySee notes to consolidated financial statements. Common StockRetained EarningsTreasury StockTotal Equity
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ARK RESTAURANTS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands)September 30,2017October 1,2016CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income4,757$ 5,490$ Adjustments to reconcile consolidated net income to net cash provided by operating activities: Loss on closure of restaurants120 16 Gain on sale of Ark Jupiter RI, LLC(1,637) - Loss on disposal of assets283 - Deferred income taxes1,550 1,134 Stock-based compensation- 286 Accrued interest on note receivable from NMR(56) - Depreciation and amortization 4,132 4,553 Amortization of deferred financing costs46 43 Operating lease deferred credit72 (220) Changes in operating assets and liabilities: Accounts receivable397 (529) Inventories193 131 Prepaid, refundable and accrued income taxes(1,373) (1,886) Prepaid expenses and other current assets546 (191) Other assets(175) (865) Accounts payable - trade1,874 (331) Accrued expenses and other current liabilities(379) (18) Net cash provided by operating activities10,350 7,613 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (13,904) (2,160) Loans and advances made to employees(121) (198) Payments received on employee receivables175 230 Proceeds from the sale of Ark Jupiter RI, LLC2,474 - Purchase of the Oyster House(3,043) - Additional investment in Meadowlands Newmark LLC(222) - Loan made to Meadowlands Newmark LLC- (200) Purchase of Shuckers- (717) Net cash used in investing activities (14,641) (3,045) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable(3,951) (2,533) Borrowings under credit facility6,198 - Payment of debt financing costs- (131) Dividends paid(2,569) (3,420) Proceeds from issuance of stock upon exercise of stock options72 83 Distributions to non-controlling interests(1,292) (1,063) Net cash used in financing activities(1,542) (7,064) NET DECREASE IN CASH AND CASH EQUIVALENTS(5,833) (2,496) CASH AND CASH EQUIVALENTS, Beginning of year7,239 9,735 CASH AND CASH EQUIVALENTS, End of year1,406$ 7,239$ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest707$ 416$ Income taxes1,490$ 2,850$ Non-cash financing activities: Note payable in connection with the purchase of the Oyster House8,000$ -$ Change in excess tax benefits from stock-based compensation(389)$ 86$ Accrued dividend857$ -$ Note payable in connection with the purchase of Shuckers-$ 5,000$ Retirement of 1,356 treasury shares-$ 13,220$ 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 September 30, 2017, Ark Restaurants Corp. and Subsidiaries (the “Company”) owned and operated 20
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 five restaurants in New York City, two in Washington, D.C., five in Las Vegas, Nevada,
three in Atlantic City, New Jersey, one in Boston, Massachusetts, two in Florida and two on the gulf coast of
Alabama. 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.
In Boston, Massachusetts, the Company operates a restaurant in the Faneuil Hall Marketplace. The Florida
operations include the Rustic Inn in Dania Beach, Florida and 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. In Alabama, the Company operates two Original Oyster Houses, one in Gulf
Shores, Alabama and one in Spanish Fort, Alabama.
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.
The Company had a working capital deficiency of $16,072,000 at September 30, 2017 primarily as a result of our
purchase of The Oyster House properties in November 2016 and costs associated with the renovation of our
Sequoia property in Washington, DC. We believe that our existing cash balances, current banking facilities and
cash provided by operations will be sufficient to meet our liquidity and capital spending requirements at least
through December 31, 2018. In addition, the Company is in the process of increasing the amounts available
under its existing credit facility and refinancing outstanding borrowings over longer repayment periods. Such
refinancing is expected to be completed in 2018.
Accounting Period — The Company’s fiscal year ends on the Saturday nearest September 30. The fiscal years
ended September 30, 2017 and October 1, 2016 included 52 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.
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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
instruments.
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.
As of September 30, 2017 the Company had accounts receivable balances due from two hotel operators totaling
39% of total accounts receivable. As of October 1, 2016, the Company had accounts receivable balances due
from two hotel operators totaling 51% of total accounts receivable.
For the year ended September 30, 2017 the Company made purchases from one vendor that accounted for 10% of
total purchases. For the year ended October 1, 2016, 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.
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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.
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. See Notes 4 and 10 for information regarding impairment charges for
the year ended September 30, 2017. No impairment charges were necessary for the year ended October 1, 2016.
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 September 30, 2017 and October 1, 2016, the
Company performed qualitative assessments 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 September 30, 2017 and 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.
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Reclassification — Certain reclassifications have been made to the prior year’s financial statements to enhance
comparability with the current year’s presentation of prepaid and refundable income taxes, as well as other
income. As a result, comparative figures have been adjusted to conform to the current year’s presentation.
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, as well as license fees, property management fees and
other rentals.
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 September
30, 2017 and October 1, 2016, the total liability for gift cards in the amounts of $158,106 and $161,487,
respectively, are included in Accrued Expenses and Other Current Liabilities in the Consolidated Balance Sheets.
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 September 30, 2017 and October 1, 2016, 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). The dilutive effect of stock options is reflected in diluted earnings per share by application of the
treasury stock method. Under the treasury stock method, if the average market price of a share of common stock
increases above the option's exercise price, the proceeds that would be assumed to be realized from the exercise
of the option would be used to acquire outstanding shares of common stock. The dilutive effect of awards is
directly correlated with the fair value of the shares of common stock.
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
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Company did not grant any options during the fiscal years 2017 and 2016. The Company 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 June 2014, the Financial Accounting Standards Board (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 was effective for the
Company’s fiscal year ended September 30, 2017 and did not have an impact on the Company’s consolidated
financial condition or results of operations.
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 were effective for the Company’s fiscal year ended September 30, 2017 and did not have an
impact on the Company’s consolidated financial condition or results of operations.
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
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 were effective for the Company’s fiscal year ended September 30, 2017
and did not have an impact on the Company’s consolidated financial condition or results of operations.
New Accounting Standards Not Yet Adopted — In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers. The guidance 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. The guidance also
requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts. This update is effective for the Company in the first quarter of fiscal 2019, which is
when we plan to adopt these provisions. This update permits the use of either the retrospective or cumulative
effect transition method, however we have not yet selected a transition method. Upon initial evaluation, we do
not believe this guidance will impact our recognition of revenue from company-owned restaurants, which is our
primary source of revenue. We are continuing to evaluate the effect this guidance will have on other, less
significant revenue sources, including catering revenues.
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 the
Company in the first quarter of fiscal 2018. 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 the Company’s consolidated financial condition
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
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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 the Company in the first quarter of fiscal 2019.
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 guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. This update requires a lessee to recognize on the
balance sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also
requires certain qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows
arising from leases. This update is effective for the Company in the first quarter of fiscal 2020, which is when we
plan to adopt these provisions. We plan to elect the available practical expedients on adoption and we expect our
balance sheet presentation to be materially impacted upon adoption due to the recognition of right-of-use assets
and lease liabilities for operating leases. We are continuing to evaluate the effect this guidance will have on our
consolidated financial statements and related disclosures.
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 and interim periods beginning after December 15, 2016, which will require
us to adopt these provisions in the first quarter of fiscal 2018. The Company does not expect the adoption of this
this guidance 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 update provides clarification regarding how certain cash receipts and cash payments are presented and
classified in the statement of cash flows and addresses eight specific cash flow issues with the objective of
reducing the existing diversity in practice. This update is effective for annual and interim periods beginning after
December 15, 2017, which will require us to adopt these provisions in the first quarter of fiscal 2019 using a
retrospective approach. Early adoption is permitted. We do not expect the adoption of this guidance to have a
material impact on our 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 guidance address the income tax consequences of intra-entity transfers of
assets other than inventory. Current guidance prohibits the recognition of current and deferred income taxes for
an intra-entity asset transfer until the asset has been sold to an outside party. In addition, interpretations of this
guidance have developed in practice over the years for transfers of certain intangible and tangible assets. The
amendments in the update will require recognition of current and deferred income taxes resulting from an intra-
entity transfer of an asset other than inventory when the transfer occurs. This update is effective for us in the first
quarter of fiscal 2019, which is when we plan to adopt these provisions using a modified retrospective approach.
We do not expect the adoption of this guidance to have a material impact on our 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 guidance 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 amendments in this update are effective for financial statements
issued for annual and interim periods beginning after December 15, 2016, which will require us to adopt these
provisions in the first quarter of fiscal 2018. The Company does not expect the adoption of this guidance to have
a material impact on its consolidated financial statements.
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In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a
Business. This update provides that when substantially all the fair value of the assets acquired is concentrated in
a single identifiable asset or a group of similar identifiable assets, the set is not a business. This update will be
effective for the Company in the first quarter of 2019. The Company is currently evaluating the potential impact
adoption of this guidance on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for
Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by
eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing
the implied fair value of a reporting unit’s goodwill with the carrying amount. The new rules will be effective for
the Company in the first quarter of 2021. The Company is currently evaluating the potential impact adoption of
this guidance 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.
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.
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September 30,2017October 1,2016Cash and cash equivalents363$ 889$ Accounts receivable716 429 Inventories22 23 Prepaid and refundable income taxes226 178 Prepaid expenses and other current assets63 50 Due from Ark Restaurants Corp. and affiliates (1)185 - Fixed assets - net6 22 Other assets71 71 Total assets1,652$ 1,662$ Accounts payable - trade116$ 114$ Accrued expenses and other current liabilities260 238 Due to Ark Restaurants Corp. and affiliates (1)- 173 Operating lease deferred credit51 73 Total liabilities 427 598 Equity of variable interest entities 1,225 1,064 Total liabilities and equity1,652$ 1,662$ (in thousands)
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 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.
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 an adjacent retail shopping plaza 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. The
total purchase price was for $10,750,000 plus inventory of approximately $293,000. The acquisition is 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 fair values of the assets acquired, none of which are
amortizable, were allocated as follows (amounts in thousands):
The Consolidated Statement of Income for the year ended September 30, 2017 includes revenues and income of
approximately $5,322,000 and $11,804,000 and $684,000 and $1,243,000, respectively, related to the Shuckers
and Oyster House properties. The years ended September 30, 2017 and October 1, 2016 include revenues and
income (loss) of approximately $4,409,000 and ($2,759,000) and $10,078,000 and $1,156,000, respectively,
related to Sequoia which was closed from January 4, 2017 through June 23, 2017. The unaudited pro forma
financial information set forth below is based upon the Company’s historical Consolidated Statements of Income
for the years ended September 30, 2017 and October 1, 2016 and includes the results of operations for Shuckers
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Inventory67,000$ 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$ Inventory293$ Land and buildings6,650 Furniture, fixtures and equipment395 Trademarks1,720 Goodwill1,985 11,043$
and the Oyster House properties for the periods 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 and the Oyster House properties occurred on the
dates indicated, nor does it purport to represent the results of operations for future periods.
4. RECENT RESTAURANT DISPOSITIONS
Lease Expirations – 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.
The Company was advised by the landlord that it would have to vacate The Grill at Two Trees property at the
Foxwoods Resort and Casino in Ledyard, CT, which had a no rent lease. The closure of this property occurred
on January 1, 2017 and did not result in a material charge.
Other – 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 operated 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, 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 entered into a temporary lease and sub-lease arrangement which expired on July
18, 2017. The Company vacated the space in June 2017. In connection with these transactions the Company
recognized a gain in the amount of $1,637,000 during the year ended September 30, 2017.
The Company transferred its lease and the related assets of Canyon Road located in New York, NY to a former
employee. In connection with this transfer, the Company recognized an impairment loss included in depreciation
and amortization expense in the amount of $75,000 for the year ended September 30, 2017.
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 with a 63.7% ownership interest. On November 19, 2013, the Company invested an additional $464,000 in
NMR through a purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a
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September 30,2017October 1,2016(unaudited)(unaudited)Total revenues155,211$ 163,972$ Net income 4,246$ 6,643$ Net income per share - basic1.24$ 1.94$ Net income per share - diluted1.20$ 1.89$ Basic3,424 3,418 Diluted3,531 3,507 Year Ended
total ownership of 11.6% of Meadowlands Newmark, LLC, and an effective ownership interest in NMR of 7.4%,
subject to dilution. In 2015, the Company invested an additional $222,000 in NMR and on February 7, 2017, the
Company invested an additional $222,000 in NMR, both as a result of capital calls, bringing its total investment
to $5,108,000 with no change in ownership. This investment has been accounted for based on the cost method.
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 $9,000 and
$164,000 at September 30, 2017 and October 1, 2016, 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 $1,871,144 and $1,814,659, are included in Investment In and Receivable From
New Meadowlands Racetrack in the Consolidated Balance Sheets at September 30, 2017 and October 1, 2016,
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.
State law prohibits the issue from being put on the ballot before voters for the following two years. As a result,
we performed an assessment of the recoverability of our indirect Investment in NMR as of September 30, 2017
and 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,
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impairment charges could have resulted. As a result of the above, no impairment was deemed necessary as of
September 30, 2017 and October 1, 2016.
6. FIXED ASSETS
Fixed assets consist of the following:
Depreciation and amortization expense related to fixed assets for the years ended September 30, 2017 and
October 1, 2016 was $4,096,000 and $4,490,000, 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. Included in 2017 are impairment charges of $75,000 related to Canyon
Road (see Note 4), $45,000 related to Branches, which is included in other operating costs and expenses, and
$283,000 related to Sequoia (see Note 10).
7.
INTANGIBLE ASSETS, GOODWILL AND TRADEMARKS
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 September 30, 2017 and October 1, 2016
was $42,000 and $63,000, respectively. Amortization expense for each of the next five years is expected to be
$38,000.
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(In thousands)Land and building17,164$ 9,002$ Leasehold improvements50,127 43,402 Furniture, fixtures and equipment35,978 36,062 Construction in progress980 482 104,249 88,948 Less: accumulated depreciation and amortization59,034 59,402 45,215$ 29,546$ September 30,2017October 1,2016(In thousands)Purchased leasehold rights (a)2,395$ 2,737$ Noncompete agreements and other 253 303 2,648 3,040 Less accumulated amortization2,239 2,514 Total intangible assets409$ 526$ September 30,2017October 1,2016
Goodwill is the excess of cost over fair market value of tangible and intangible net assets acquired. Goodwill is
not presently amortized but tested for impairment annually or when the facts or circumstances indicate a possible
impairment of goodwill as a result of a continual decline in performance or as a result of fundamental changes in
a market. Trademarks, which have indefinite lives, are not currently amortized and are tested for impairment
annually or when facts or circumstances indicate a possible impairment as a result of a continual decline in
performance or as a result of fundamental changes in a market.
The changes in the carrying amount of goodwill and trademarks for the years ended September 30, 2017 and
October 1, 2016 are as follows:
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 $157,000 in August 2016 related to the above matter. Such amounts are included
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GoodwillTrademarksBalance as of October 3, 20156,813$ 1,221$ Acquired during the year1,082 390 Impairment losses- - Balance as of October 1, 20167,895 1,611 Acquired during the year1,985 1,720 Impairment losses- - Balance as of September 30, 20179,880$ 3,331$ (In thousands)(In thousands)Sales tax payable813$ 942$ Accrued wages and payroll related costs2,475 2,495 Customer advance deposits4,186 4,077 Accrued occupancy and other operating expenses2,702 3,041 10,176$ 10,555$ September 30,2017October 1,2016
in the Consolidated Statement of Income for the year ended October 1, 2016 as a reduction of Occupancy
Expenses.
9. NOTES PAYABLE – BANK
Long-term debt consists of the following:
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.
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.
Also on October 22, 2015, the Company also entered into a credit agreement (the “Revolving Facility”) with
BHBM which, as amended, expires on October 21, 2019 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 are 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.
On November 30, 2016, in connection with the acquisition of The Oyster House properties, the Company issued a
promissory note under the Revolving Facility to BHBM for $8,000,000. The note bears interest at LIBOR plus
3.5% per annum, and is payable in 60 equal monthly installments of $133,273, commencing on January 1, 2017.
During the year ended September 30, 2017, the Company borrowed $6,198,000 under the Revolving Facility to
finance a portion of the renovation of its Sequoia property. As of September 30, 2017, such borrowings had a
weighted average interest rate of 4.7%.
Deferred financing costs incurred in connection with the Revolving Facility in the amount of $130,585 are being
amortized over the life of the agreements on a straight-line basis and included in interest expense. Amortization
expense of $46,000 and $43,000 is included in interest expense for the years ended September 30, 2017 and
October 1, 2016, respectively.
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September 30,October 1,20172016Promissory Note - Rustic Inn purchase2,290$ 3,907$ Promissory Note - Shuckers purchase3,083 4,084 Promissory Note - Oyster House purchase6,667 - 12,040 7,991 Less: Current maturities(4,174) (2,617) Less: Unamortized deferred financing costs(42) (53) Long-term debt7,824$ 5,321$ (In thousands)
Borrowings under the Revolving Facility, which include all 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 of its financial covenants under the Revolving Facility as
of September 30, 2017 except for the fixed charge coverage ratio covenant. On December 21, 2017, we were
issued a waiver for this covenant as of September 30, 2017.
As of September 30, 2017, 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.
As of September 30, 2017, 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 $13,547,000 and $13,791,000 for the fiscal years ended September 30, 2017
and October 1, 2016, respectively. Contingent rentals, included in rent expense, were approximately $4,420,000
and $4,382,000 for the fiscal years ended September 30, 2017 and October 1, 2016, respectively.
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20184,216$ 20193,273 20202,599 20211,682 2022270 12,040$ AmountFiscal Year(In thousands)20189,720$ 20199,004 20208,118 20217,149 20226,649 Thereafter34,439 Total minimum payments75,079$
On January 12, 2016, the Company entered into an Amended and Restated Lease for its Sequoia property in
Washington D.C. extending the lease for 15 years through November 30, 2032 with one additional five-year
option. Annual rent under the new lease is approximately $1,200,000 increasing annually through expiration.
Under the terms of the agreement, the property was closed January 1, 2017 for renovation and reconcepting
which cost approximately $11,000,000. In connection with this closure, the Company recognized an impairment
loss related to fixed asset disposals in the amount of $283,000, which is included in depreciation and amortization
expense for the year ended September 30, 2017. The restaurant re-opened in June 2017.
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 during the years ended September 30, 2017 and 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.
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.
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.
During the year ended September 30, 2017, options to purchase 90,000 shares of common stock at an exercise
price of $32.15 per share expired unexercised.
No options were granted during the years ended September 30, 2017 and October 1, 2016. The following table
summarizes stock option activity under all plans:
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Compensation cost charged to operations for the fiscal years ended September 30, 2017 and October 1, 2016 for
share-based compensation programs was approximately $0 and $286,000, respectively. The compensation cost
recognized is classified as a general and administrative expense in the Consolidated Statements of Income. As of
September 30, 2017, there was no unrecognized compensation cost related to unvested stock options.
The following table summarizes information about stock options outstanding as of September 30, 2017:
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Weighted Weighted Weighted AverageAverageAverageExerciseContractualExerciseSharesPriceTermSharesPriceOutstanding, beginning of year518,608 20.33$ 5.1 Years523,800 20.29$ 20.33Options: Granted- - Exercised(6,808) 17.15$ (5,192) 16.26$ Canceled or expired(90,000) 32.15$ - Outstanding and expected to vest, end of year421,800 17.86$ 5.2 Years2,745,156$ 518,608 20.33$ 1,979,232$ Exercisable, end of year421,800 17.86$ 5.2 Years2,745,156$ 518,608 20.33$ 1,979,232$ Weighted average remaining contractual life5.2 Years5.1 YearsShares available for future grant500,000 500,000 Aggregate Intrinsic ValueAggregate Intrinsic Value20172016Range of Exercise PricesNumber of SharesWeighted Average Exercise PriceWeighted Average Remaining contractual life (in years)$12.0466,000 12.04$ 1.6 $14.40156,300 14.40$ 4.7 $22.50199,500 22.50$ 6.7 421,800 20.33$ 5.2 Options Outstanding and Exercisable
12. INCOME TAXES
The provision for income taxes consists of the following:
The effective tax rate differs from the U.S. income tax rate as follows:
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:
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Year Ended(In thousands)Current provision (benefit): Federal(144)$ 778$ State and local287 192 143 970 Deferred provision (benefit): Federal1,391 915 State and local134 213 1,525 1,128 1,668$ 2,098$ September 30, 2017October 1, 2016Year Ended(In thousands)Provision at Federal statutory rate (34% in 2017 and 2016)2,185$ 2,580$ State and local income taxes, net of tax benefits255 326 Tax credits(632) (611) Income attributable to non-controlling interest(244) (501) Changes in tax rates8 9 Other96 295 1,668$ 2,098$ September 30, 2017October 1, 2016
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 $354,000 and
$342,000 as of September 30, 2017 and October 1, 2016, respectively, attributable to state and local net operating
loss carryforwards which are not realizable on a more-likely-than-not basis. During fiscal 2017, the Company’s
valuation allowance increased by approximately $12,000 as the Company determined that certain state net
operating losses became unrealizable on a more-likely-than-not basis.
As of September 30, 2017, the Company has New York State net operating losses of approximately $20,030,000
and New York City net operating loss carryforwards of approximately $18,455,000 that expire through fiscal 2037.
During fiscal 2017, certain equity compensation awards expired unexercised. As such, the Company reversed the
related deferred tax asset in the amount of approximately $400,000 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 $11,000 related to equity compensation.
A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding interest and penalties
is as follows:
The entire amount of unrecognized tax benefits if recognized would reduce our annual effective tax rate. As of
September 30, 2017, the Company accrued approximately $127,000 of interest and penalties. The Company does
not expect its unrecognized tax benefits to change significantly over the next 12 months. Inherent uncertainties
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(In thousands)Long-term deferred tax assets (liabilities): State net operating loss carryforwards3,210$ 3,179$ Operating lease deferred credits826 772 Depreciation and amortization(2,160) (256) Deferred compensation580 986 Partnership investments(291) (709) Prepaid expenses(419) (444) Other99 230 Total long-term deferred tax assets1,845 3,758 Valuation allowance(354) (342) Total net deferred tax assets1,491$ 3,416$ October 1, 2016September 30, 2017September 30,October 1,20172016(In thousands)Balance at beginning of year366$ 307$ Additions based on tax positions taken in current and prior years15 105 Settlements(134) (46) Decreases based on tax postions taken in prior years(96) - Balance at end of year151$ 366$
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 2014 through 2017 fiscal years remain subject to examination by the Internal Revenue Service
most state and local tax authorities.
13. 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 September 30, 2017 and October 1, 2016 follows:
For the year ended September 30, 2017, options to purchase 66,000 shares of common stock at a price of $12.04,
options to purchase 156,300 shares of common stock at a price of $14.40 and options to purchase 199,500 shares
of common stock at a price of $22.50 per were included in diluted earnings per share.
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 $32.15 per share were not included in diluted earnings per share as their
impact would be anti-dilutive.
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Net Income Attributable to Ark Restaurants Corp.(Numerator)Shares(Denominator)Per ShareAmountYear ended September 30, 2017 Basic EPS4,039$ 3,424 1.18$ Stock options- 107 (0.04) Diluted EPS 4,039$ 3,531$ 1.14$ Year ended October 1, 2016 Basic EPS4,030$ 3,418 1.18$ Stock options- 89 (0.03) Diluted EPS 4,030$ 3,507 1.15$ (In thousands, except per share amounts)
14. RELATED PARTY TRANSACTIONS
Employee receivables totaled approximately $399,000 and $453,000 at September 30, 2017 and October 1, 2016,
respectively. Such amounts consist of loans that are payable on demand and bear interest at the minimum
statutory rate (1.29% at September 30, 2017 and 0.66% at October 1, 2016).
15. SUBSEQUENT EVENTS
On December 5, 2017, 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, 2018 to shareholders of record at the close of business on December 19,
2017.
On December 12, 2017, the Company amended its Revolving Facility to increase the total availability to be the
lesser of (i) $12,000,000 and (ii) $22,000,000 less the then aggregate amount of all indebtedness and obligations
to BHBM.
On December 22, 2017, the Tax Cuts and Jobs Acts (the “Act”) was enacted into law. The new legislation
contains several key tax provisions including the reduction of the corporate income tax rate to 21% effective
January 1, 2018, as well as a variety of other changes including limitation of the tax deductibility of interest
expense, acceleration of expensing of certain business assets and reductions in the amount of executive pay that
could qualify as a tax deduction. The Company is assessing the impact of the enacted tax law on its business and
its consolidated financial statements and expects to record a discrete tax benefit related to the remeasurement of
its deferred tax assets and liabilities for the reduced federal tax rates during the three-month period ending
December 31, 2017.
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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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