Ark
Restaurants
Corp.
2018 ANNUAL REPORT
The Company
We are a New York corporation formed in 1983. As of the fiscal year ended September 29, 2018, 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 29, 2018, 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 29,
2018, 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 29, 2018, including financial statements, exhibits and schedules thereto, to each of our
shareholders of record on February 12, 2019 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, 2019
Shareholders, Associates, and Friends of our Company,
EBITDA for this past year, which was approximately the same as the prior year, was considerably shy of our
internal projections. Despite this uncomfortable result, we remain confident that the operating entities in our
portfolio will provide better cash flow and value to equity shareholders going forward.
Our properties in Las Vegas and Florida performed as expected with revenue and operating profits edging
higher. In Alabama, despite stable revenues, operating profits were lower than projected due to inefficiencies
in the cost of goods. This has since been corrected and in addition, we have recently restructured back-office
operations in Alabama which will lower our cost of doing business. Results there should be back in line with
expectations. We are comfortable with these restaurants and the real estate that accompanied their acquisition.
Much like our Florida properties, where we also acquired the real estate of their operations, these are
properties with experienced management and we expect their performance to continue to improve shareholder
value.
Our difficulties in the production of projected cash flow were essentially confined to the northeast. Our
properties in the northeast underperformed for several reasons. In Boston, Durgin-Park had been generating
losses for the last three years. We made efforts to correct this but last year the losses increased substantially,
beyond our projections and beyond our operating loss in the prior fiscal year. We recently made the decision
to close this property. Bryant Park in New York has approximately 600 outdoor seats that are in constant
demand during the warm months. We also have outdoor seats at El Rio Grande in New York. The weather
this year, especially in the months of August and September, significantly intruded on the utilization of those
seats. When our outdoor areas are underperforming, we are unable to adjust labor. We go into the outdoor
season staffed for the increased revenue these outdoor seats provide and not having them utilized is both a
loss of revenue and a loss of efficiency of labor. Obviously, this places significant pressure on operating
profits. Sequoia in Washington D.C. has 550 outdoor seats and experienced the same weather patterns as
New York City and therefore the same squeeze on operating results. But, the disappointment at this restaurant
was not confined to weather. After an expensive refurbishment which added additional capacity for private
events, bookings in the late summer and fall were less than our expectation. We believe this was a factor of
having been closed many months for the renovation. The weather and less than expected revenue from events
translated into a major disappointment. Recently, activity for private events at Sequoia has improved. A good
team is in place and they are starting to secure business. Finally, Thunder Grill at Union Station in
Washington D.C. underperformed. A sizable revenue generator for the restaurant, Amtrak employees, moved
from their leased space at the station when Amtrak moved their corporate office.
Our investment in an LLC that is the majority owner in The Meadowlands Racetrack in northern New Jersey
received a boost in revenue with the inauguration of sports betting in the fourth quarter of the fiscal year. The
dollar volume of betting we are servicing has exceeded the volumes of other sports betting operations in
Atlantic City. This we believe bodes well for the future of The Meadowlands in obtaining a casino license
once New Jersey determines its needs to offset the diminution of tax revenue from Atlantic City by allowing a
casino in the northern part of the state. In addition to holding an interest in the LLC, if the LLC is successful
in obtaining a casino license, we retain the exclusive right to all casino food and beverage operations with the
exception of a Hard Rock Café (Hard Rock is a partner in the LLC).
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.
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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
Anthony J. Sirica, Chief Financial Officer
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
Blair Roy, 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 Giovannone, Clyde Frazier’s Wine and Dine
Ashlee Dean, Southwest Porch
Ana Harris, Robert
Bridgeen Rice, El Rio Grande
Donna Simms, Bryant Park Grill
Restaurant General Managers-Washington D.C.
Gregory Thompson, Thunder Grill
Annie Chen, 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
Deme Ayele, Yolos Mexican Grill
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 Managers-Florida
Michael Diascro, Rustic Inn
Edgar Gonzalez-Pratts, 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 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
Restaurant Chefs-Las Vegas
Bernard Camat, Assistant Executive Chef
Brandon Greenwood, Employee Dining Room and Production
Adam Rio, Gallagher’s Steakhouse
Justin Vega, America Restaurant
Emery Allen, Broadway Burger
Ryan Casarez, Yolos Mexican Grill
Pedro Gonzalez, Gonzalez y Gonzalez
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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 29, 2018, 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.
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 29, 2018 and September 30, 2017 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 restaurant operating income of $5,032,000 for the year ended September 29, 2018 decreased
6.3% compared to restaurant operating income of $5,371,000 (which excludes 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) for the year ended September 30, 2017. This decrease resulted primarily from poor weather
conditions in the Northeast during the fourth quarter of fiscal 2018, partially offset by: (a) an increase in
operating income in 2018 at Sequoia in Washington, DC which was closed for renovation for the second
and third quarters of fiscal 2017, and (b) an increase in operating income at The Rustic Inn in Dania Beach,
FL as a result of the completion of the road construction project in early fiscal 2018 that started in the second
quarter of fiscal 2016 by the local municipality.
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The following table summarizes the significant components of the Company’s operating results for the years
ended September 29, 2018 and September 30, 2017, respectively:
Year Ended
Variance
September 29,
2018
September 30,
2017
(in thousands)
$
%
REVENUES:
Food and beverage sales
Other revenue
Total revenues
COSTS AND EXPENSES:
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Depreciation and amortization
$
156,837
3,153
$
151,196
2,681
$
5,641
472
159,990
153,877
6,113
43,036
55,620
18,577
21,437
11,214
5,074
41,597
53,074
17,100
20,690
11,504
4,541
3.7%
17.6%
4.0%
3.5%
4.8%
8.6%
3.6%
-2.5%
11.7%
4.3%
-6.3%
N/A
-28.2%
1,439
2,546
1,477
747
(290)
533
6,452
(339)
(1,637)
Total costs and expenses
154,958
148,506
RESTAURANT OPERATING INCOME (LOSS)
Gain on sale of Ark Jupiter RI LLC
5,032
-
5,371
1,637
OPERATING INCOME (LOSS)
$
5,032
$
7,008
$
(1,976)
Revenues
During the Company’s year ended September 29, 2018 (“fiscal 2018”), revenues increased 4.0% compared to
the year ended September 30, 2017 (“fiscal 2018”). This increase resulted primarily from: (i) revenues
related to the Sequoia in Washington, DC which was closed for renovation for the second and third quarters
of fiscal 2017, (ii) revenues related to The Oyster House properties in Gulf Shores, Alabama (which were
acquired on November 30, 2016), and (iii) the same-store sales impacts discussed below, partially offset by
revenues related to the Rustic Inn, Jupiter, which was closed in June 2017.
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Food and Beverage Same-Store Sales
On a Company-wide basis, same store food and beverage sales increased 1.7% for the year ended September
29, 2018 as compared to the year ended September 30, 2017 as follows:
Year Ended
Variance
September 29,
2018
September 30,
2017
(in thousands)
$
%
$
47,852
39,636
3,112
7,406
2,839
2,120
11,924
28,068
$
45,852
39,887
3,573
7,536
3,235
2,156
11,804
26,467
$
2,000
(251)
(461)
(130)
(396)
(36)
120
1,601
142,957
13,880
140,510
$
2,447
8,276
4.4%
-0.6%
-12.9%
-1.7%
-12.2%
-1.7%
1.0%
6.0%
1.7%
Las Vegas
New York
Washington, DC
Atlantic City, NJ
Boston
Connecticut
Alabama
Florida
Same store sales
Other
Food and beverage sales
$
156,837
$
151,196
Same-store sales in Las Vegas increased 4.4% 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 0.6%, primarily as a result of poor weather conditions during the months in
which our properties with outdoor seating areas are open, partially offset by strong catering revenues. Same-
store sales in Washington, DC (which excludes Sequoia, which was closed for renovation for the second and
third fiscal quarter of 2017) decreased 12.9% due to decreased traffic at our Thunder Grill property as a result
of a major tenant vacating the adjacent space. Same-store sales in Atlantic City decreased 1.7% primarily due
to decreased traffic at the properties in which we operate our restaurants as a result of the re-opening of two
properties in June 2018. Same-store sales in Boston decreased 12.2% primarily as a result of decreased traffic
at Faneuil Hall Marketplace where our property is located. Same-store sales in Connecticut decreased 1.7%
due to declining traffic at the Foxwoods Resort and Casino where our properties are located. Same-store sales
in Alabama were consistent with last year as expected. Same-store sales in Florida increased 6.0% as a result
of the completion of the road construction project started in the second quarter of fiscal 2016 by the local
municipality near The Rustic Inn in Dania Beach, FL. Other food and beverage sales consist of sales related
to Sequoia, which was closed in for the entire second and third fiscal quarters of 2017, new restaurants
opened or acquired during the applicable period (e.g. the Oyster House properties in 2017) and sales related to
properties that were closed due to lease expiration and other closures.
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
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 increase in Other Revenue for fiscal 2018 as compared to fiscal 2017
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is primarily due to an increase in property management fees and other rentals partially offset by decreased
purchase service fees.
Costs and Expenses
Costs and expenses for the years ended September 29, 2018 and September 30, 2017 were as follows (in
thousands):
Year Ended
September 29,
2018
% to
Total
Revenues
Year Ended
September 30,
2017
% to
Total
Revenues
Increase
(Decrease)
$
%
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Depreciation and amortization
$
43,036
55,620
18,577
21,437
11,214
5,074
26.9%
34.8%
11.6%
13.4%
7.0%
3.2%
$
41,597
53,074
17,100
20,690
11,504
4,541
27.0%
34.5%
11.1%
13.4%
7.5%
3.0%
$
1,439
2,546
1,477
747
(290)
533
3.5%
4.8%
8.6%
3.6%
-2.5%
11.7%
$
154,958
$
148,506
$
6,452
The small decrease in food and beverage costs as a percentage of total revenues for the year ended September
29, 2018 compared to the same period of last year is primarily the result of a better mix of catering versus a la
carte business at our larger properties (i.e. Bryant Park, Sequoia) combined with a taking advantage of bulk
purchasing discounts offset by higher commodity prices.
Payroll expenses as a percentage of total revenues for the year ended September 29, 2018 increased as
compared to the same period of last year primarily as a result of minimum wage increases associated with
changes to labor laws partially offset by a better mix of catering versus a la carte business at our larger
properties.
Occupancy expenses as a percentage of total revenues, increased as compared to the same period of last year
as a result of rents that are paid based on a percentage of sales and base rent increase at our other properties,
partially offset by 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).
Other operating costs and expenses as a percentage of total revenues for fiscal 2018 were consistent with
fiscal 2017.
General and administrative expenses (which relate solely to the corporate office in New York City) as a
percentage of total revenues for fiscal 2018 decreased as compared to the same period of last year primarily as
a result of lower headcount partially offset by annual wage increases.
Depreciation and amortization expense for fiscal 2018 increased as compared to the same period of last year
primarily as a result of depreciation on the improvements made at our Sequoia property which were placed in
service in the fourth fiscal quarter of 2017, partially offset by additional depreciation in the amount of
$358,000 related to asset write-offs at Sequoia and Canyon Road (whose lease was transferred to an unrelated
party) in fiscal 2017.
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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.
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.
On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the
Tax Cuts and Jobs Act (“TCJA”). Under Accounting Standards Codification (“ASC”) 740, the effects of
changes in tax rates and laws are recognized in the period which the new legislation is enacted. The TCJA
makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S.
federal corporate tax rate from 35% to 21% effective January 1, 2018; (2) changing rules related to uses and
limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3)
accelerated expensing on certain qualified property; (4) creating a new limitation on deductible interest
expense to 30% of tax adjusted EBITDA through 2021 and then 30% of tax adjusted EBIT thereafter; (5)
eliminating the corporate alternative minimum tax; and (6) further limitations on the deductibility of
executive compensation under IRC §162(m) for tax years beginning after December 31, 2017. As the
reduction in the U.S. federal corporate tax rate is administratively effective on January 1, 2018, our blended
U.S. federal tax rate for the year ended September 29, 2018 was approximately 24%.
In response to the TCJA, the U.S. Securities and Exchange Commission (“SEC”) staff issued Staff
Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of
TCJA. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic
740, Income Taxes in the reporting period in which the TCJA was enacted. SAB 118 addresses situations
where the accounting is incomplete for certain income tax effects of the TJCA upon issuance of a company’s
financial statements for the reporting period which include the enactment date. SAB 118 allows for a
provisional amount to be recorded if it is a reasonable estimate of the impact of the TCJA. Additionally, SAB
118 allows for a measurement period to finalize the impacts of the TCJA, not to extend beyond one year from
the date of enactment.
In connection with the TCJA, the Company recorded an income tax benefit of $1,382,000 related to the re-
measurement of our deferred tax assets and liabilities for the reduced U.S. federal corporate tax rate of 21%.
The Company’s accounting for the TCJA is complete as of September 29, 2018, with no significant
differences from our provisional estimates recorded during interim periods.
The Company’s overall effective tax rate in the future will be affected by factors such as the utilization of
state and local net operating loss carryforwards, the generation of FICA tax credits and the mix of earnings by
state taxing jurisdictions as Nevada does not impose a state income tax, as compared to the other major state
and local jurisdictions in which the Company has operations. Our overall effective tax rate in the future will
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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.
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 2018 decreased to $9,575,000 as compared to $10,350,000
in fiscal 2017. This decrease 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 2018 was $5,050,000 and resulted primarily from purchases of
fixed assets at existing restaurants and costs associated with the renovation of Sequoia.
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 financing activities for the years ended September 29, 2018 and September 30, 2017 of
$919,000 and $1,542,000, respectively, 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.
The Company had a working capital deficiency of $4,628,000 at September 29, 2018 as compared with a
deficiency of $16,072,000 at September 30, 2017. This decrease resulted primarily from the refinancing
completed on June 1, 2018 as discussed in Note 9 – Notes Payable Bank. 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, 2019.
On January 4, 2018, April 4, 2018, July 6, 2018 and October 12, 2018, 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 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.
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Our restaurants generally do not achieve substantial increases in revenue from year to year, which we
consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons,
we would have to open additional restaurant facilities or expand existing restaurants. There can be no
assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not
operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to
establish their own identity.
We may take advantage of other opportunities we consider to be favorable, when they occur, depending upon
the availability of financing and other factors.
Investment in and Receivable from New Meadowlands Racetrack
On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC
(“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing
member of NMR. On November 19, 2013, the Company invested an additional $464,000 in NMR through a
purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership
of 11.6% of Meadowlands Newmark, LLC, and an 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.
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.
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 – 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
- 13 -
the purchase price of approximately $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 $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.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial
statements. While all of these significant accounting policies impact our financial condition and results of
operations, we view certain of these policies as critical. Policies determined to be critical are those policies
that have the most significant impact on our consolidated financial statements and require management to use
a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable
judgments or estimate methodologies would cause a material effect on our consolidated results of operations,
financial position or cash flows for the periods presented in this report.
Below are listed certain policies that management believes are critical:
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. The accounting estimates
that require 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.
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.
- 14 -
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.
As a result, we performed an assessment of the recoverability of our indirect Investment in NMR as of
September 29, 2018, 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
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 29, 2018, 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 29, 2018.
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
- 15 -
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.
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 2018 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 on the Nasdaq Capital Market under the symbol “ARKR.”
As of December 11, 2018, there were 30 holders of record of our common stock and approximately an
additional 1,654 beneficial owners.
Dividend Policy
On December 7, 2016, March 1, 2017, June 5, 2017, September 6, 2017, December 5, 2017, March 6, 2018,
June 12, 2018, September 17, 2018 and December 5, 2018 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.
- 16 -
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Ark Restaurants Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and Subsidiaries
(the “Company”) as of September 29, 2018 and September 30, 2017, and the related consolidated statements
of income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended
September 29, 2018, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of September 29, 2018 and September 30, 2017, and the results of its operations and its cash
flows for each of the years in the two-year period ended September 29, 2018, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
/s/ CohnReznick LLP
We have served as the Company’s auditors since 2004
Jericho, New York
December 20, 2018
- 17 -
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes $181 at September 29, 2018 and $363 at
September 30, 2017 related to VIEs)
Accounts receivable (includes $354 at September 29, 2018 and $367 at September 30, 2017 related to VIEs)
Employee receivables
Inventories (includes $19 at September 29, 2018 and $22 at September 30, 2017 related to VIEs)
Prepaid and refundable income taxes (includes $241 at September 29, 2018 and $226 at
September 30, 2017 related to VIEs)
Prepaid expenses and other current assets (includes $51 at September 29, 2018 and $63 at
September 30, 2017 related to VIEs)
Total current assets
FIXED ASSETS - Net (includes $0 at September 29, 2018 and $6 at September 30, 2017 related to VIEs)
INTANGIBLE ASSETS - Net
GOODWILL
TRADEMARKS
DEFERRED INCOME TAXES
INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK
OTHER ASSETS (includes $82 at September 29, 2018 and $71 at September 30, 2017 related to VIEs)
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable - trade (includes $158 at September 29, 2018 and
$116 at September 30, 2017 related to VIEs)
Accrued expenses and other current liabilities (includes $348 at September 29, 2018 and
$260 at September 30, 2017 related to VIEs)
Dividend payable
Borrowings under credit facility
Current portion of notes payable
Total current liabilities
OPERATING LEASE DEFERRED CREDIT (includes ($21) at September 29, 2018 and
$51 at September 30, 2017 related to VIEs)
NOTES PAYABLE, LESS CURRENT PORTION, net of deferred financing costs
September 29,
2018
September 30,
2017
$
5,012
3,452
386
2,094
$
1,406
3,353
399
1,992
721
1,547
13,212
45,264
349
9,880
3,331
2,988
7,036
2,677
945
1,988
10,083
45,215
409
9,880
3,331
1,491
6,979
2,679
$
84,737
$
80,067
$
5,019
$
4,750
10,702
868
-
1,251
17,840
3,301
19,860
10,176
857
6,198
4,174
26,155
3,648
7,824
TOTAL LIABILITIES
41,001
37,627
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock, par value $.01 per share - authorized, 10,000 shares; issued and outstanding,
3,470 shares at September 29, 2018 and 3,428 shares at September 30, 2017
Additional paid-in capital
Retained earnings
Total Ark Restaurants Corp. shareholders' equity
NON-CONTROLLING INTERESTS
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
See notes to consolidated financial statements.
35
12,897
29,364
42,296
34
12,639
27,771
40,444
1,440
1,996
43,736
$
84,737
42,440
$
80,067
- 18 -
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
REVENUES:
Food and beverage sales
Other revenue
Total revenues
COSTS AND EXPENSES:
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Depreciation and amortization
Total costs and expenses
RESTAURANT OPERATING INCOME
Gain on sale of Ark Jupiter RI, LLC
OPERATING INCOME
OTHER (INCOME) EXPENSE:
Interest expense
Interest income
Total other (income) expense, net
INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes
CONSOLIDATED NET INCOME
Net income attributable to non-controlling interests
Year Ended
September 29,
2018
September 30,
2017
$
156,837
3,153
$
151,196
2,681
159,990
153,877
43,036
55,620
18,577
21,437
11,214
5,074
41,597
53,074
17,100
20,690
11,504
4,541
154,958
148,506
5,032
-
5,032
1,163
(57)
1,106
3,926
(1,147)
5,073
(418)
5,371
1,637
7,008
753
(170)
583
6,425
1,668
4,757
(718)
NET INCOME ATTRIBUTABLE TO ARK RESTAURANTS CORP.
$
4,655
$
4,039
NET INCOME PER ARK RESTAURANTS CORP. COMMON SHARE:
Basic
Diluted
$
$
1.35
1.31
$
$
1.18
1.14
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic
Diluted
3,439
3,549
3,424
3,531
See notes to consolidated financial statements.
- 19 -
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED SEPTEMBER 29, 2018 AND SEPTEMBER 30, 2017
(In Thousands, Except Per Share Amounts)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Total Ark
Restaurants
Corp.
Shareholders'
Equity
Non-
controlling
Interests
Total
Equity
BALANCE - October 1, 2016
3,423
$
34
$
12,942
$
27,158
$
40,134
$
2,570
$
42,704
Net income
Exercise of stock options
Tax benefit on exercise of stock options
Change in excess tax benefits from stock-based compensation
Distributions to non-controlling interests
Dividends paid - $1.00 per share
5
-
-
-
-
-
-
-
-
-
-
-
-
72
14
4,039
-
-
(389)
-
-
-
-
(3,426)
4,039
72
14
(389)
-
(3,426)
718
-
-
-
(1,292)
-
4,757
72
14
(389)
(1,292)
(3,426)
BALANCE - September 30, 2017
3,428
34
12,639
27,771
40,444
1,996
42,440
Cumulative effect adjustment related to adoption
of ASU 2016-09
BALANCE - October 1, 2017
Net income
Exercise of stock options
Stock-based compensation
Distributions to non-controlling interests
Dividends accrued and paid - $1.00 per share
-
3,428
42
-
-
-
-
-
34
1
-
-
-
-
(392)
12,247
-
603
47
-
-
392
28,163
4,655
-
-
-
-
40,444
4,655
604
47
-
(3,454)
(3,454)
-
1,996
418
-
-
(974)
-
-
42,440
5,073
604
47
(974)
(3,454)
BALANCE - September 29, 2018
3,470
$
35
$
12,897
$
29,364
$
42,296
$
1,440
$
43,736
See notes to consolidated financial statements.
- 20 -
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Stock-based compensation
Loss on closure of restaurants
Gain on sale of Ark Jupiter RI, LLC
Loss on disposal of assets
Deferred income taxes
Accrued interest on note receivable from NMR
Depreciation and amortization
Amortization of deferred financing costs
Operating lease deferred credit
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid, refundable and accrued income taxes
Prepaid expenses and other current assets
Other assets
Accounts payable - trade
Accrued expenses and other current liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets
Loans and advances made to employees
Payments received on employee receivables
Proceeds from the sale of Ark Jupiter RI, LLC
Purchase of the Oyster House
Additional investment in Meadowlands Newmark LLC
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable
Borrowings under credit facility
Payment of debt financing costs
Dividends paid
Proceeds from issuance of stock upon exercise of stock options
Distributions to non-controlling interests
Net cash used in financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, Beginning of year
CASH AND CASH EQUIVALENTS, End of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest
Income taxes
Non-cash financing activities:
Note payable in connection with the purchase of the Oyster House
Change in excess tax benefits from stock-based compensation
Refinancing of credit facility borrowings to term notes
Accrued dividend
See notes to consolidated financial statements.
- 21 -
Year Ended
September 29,
2018
September 30,
2017
$
5,073
$
4,757
47
-
-
-
(1,497)
(57)
5,074
21
(347)
(99)
(102)
224
441
2
269
526
9,575
(5,063)
(136)
149
-
-
-
(5,050)
(2,067)
5,086
(125)
(3,443)
604
(974)
(919)
3,606
1,406
-
120
(1,637)
283
1,550
(56)
4,132
46
72
397
193
(1,373)
546
(175)
1,874
(379)
10,350
(13,904)
(121)
175
2,474
(3,043)
(222)
(14,641)
(3,951)
6,198
-
(2,569)
72
(1,292)
(1,542)
(5,833)
7,239
$
5,012
$
1,406
$
1,008
$
707
$
127
$
1,490
$
-
$
-
$
8,000
$
(389)
$
4,430
$
-
$
868
$
857
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of September 29, 2018, 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 $4,628,000 at September 29, 2018. 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, 2019.
Accounting Period — The Company’s fiscal year ends on the Saturday nearest September 30. The fiscal years
ended September 29, 2018 and September 30, 2017 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.
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
- 22 -
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 29, 2018, the Company had accounts receivable balances due from two hotel operators totaling
47% of total accounts receivable. As of September 30, 2017, the Company had accounts receivable balances due
from two hotel operators totaling 39% of total accounts receivable.
For the years ended September 29, 2018 and September 30, 2017, the Company made purchases from one vendor
that accounted for 10% of total purchases.
As of September 29, 2018, all debt outstanding is with one lender (see Note 9 – Notes Payable – Bank)
Inventories — Inventories are stated at the lower of cost (first-in, first-out) or market, and consist of food and
beverages, merchandise for sale and other supplies.
Fixed Assets — Fixed assets are stated at cost less accumulated depreciation and amortization. Depreciation is
determined using the straight-line method over the estimated useful lives of the assets. Estimated lives range
from three to seven years for furniture, fixtures and equipment and up to 40 years for buildings and related
improvements. Amortization of improvements to leased properties is computed using the straight-line method
based upon the initial term of the applicable lease or the estimated useful life of the improvements, whichever is
less, and ranges from 5 to 30 years. For leases with renewal periods at the Company’s option, if failure to
exercise a renewal option imposes an economic penalty to the Company, management may determine at the
inception of the lease that renewal is reasonably assured and include the renewal option period in the
determination of appropriate estimated useful lives. Routine expenditures for repairs and maintenance are
charged to expense when incurred. Major replacements and improvements are capitalized. Upon retirement or
disposition of fixed assets, the cost and related accumulated depreciation are removed from the Consolidated
Balance Sheets and any resulting gain or loss is recognized in the Consolidated Statements of Income.
The Company includes in construction in progress improvements to restaurants that are under construction or are
undergoing substantial improvements. Once the projects have been completed, the Company begins depreciating
and amortizing the assets. Start-up costs incurred during the construction period of restaurants, including rental
of premises, training and payroll, are expensed as incurred.
Intangible Assets — Intangible assets consist principally of purchased leasehold rights, operating rights and
covenants not to compete. Costs associated with acquiring leases and subleases, principally purchased leasehold
rights, and operating rights have been capitalized and are being amortized on the straight-line method based upon
- 23 -
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. Based on this analysis, no impairment charges were warranted at
September 29, 2018. See Notes 4 and 10 for information regarding impairment charges for the year ended
September 30, 2017.
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 29, 2018 and September 30, 2017,
the Company performed qualitative assessments of factors to determine whether further impairment testing is
required. Based on this assessment, no impairment losses were warranted at September 29, 2018 and September
30, 2017 as the fair value of the Company’s equity is well in excess of its carrying amount. 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.
- 24 -
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
29, 2018 and September 30, 2017, the total liability for gift cards in the amounts of approximately $170,000 and
$158,000, 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 29, 2018 and September 30, 2017, 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 — Stock-based compensation represents the cost related to stock-based awards
granted to employees and non-employee directors. The Company measures stock-based compensation at the
grant date based on the estimated fair value of the award and recognize the cost (net of estimated forfeitures) as
compensation expense on a straight-line basis over the requisite service period. Upon exercise of options, all
excess tax benefits and tax deficiencies resulting from the difference between the deduction for tax purposes and
the stock-based compensation cost recognized for financial reporting purposes are included as a component of
income tax expense.
- 25 -
Recently Adopted Accounting Standards — In March 2016, the Financial Accounting Standard Board (the
“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation –
Improvements to Employee Share-Based Payment Accounting, which contains amended guidance for share-based
payment accounting. We adopted the provisions of this standard during the first quarter of 2018. Under ASU
2016-09, all excess tax benefits and tax deficiencies resulting from the difference between the deduction for tax
purposes and the stock-based compensation cost recognized for financial reporting purposes are included as a
component of income tax expense as of October 1, 2017. Prior to the implementation of ASU 2016-09, excess
tax benefits were recorded as a component of Additional paid-in capital and tax deficiencies were recognized
either as an offset to accumulated excess tax benefits or in the income statement if there were no accumulated
excess tax benefits. As a result of the adoption of ASU 2016-09 we have recorded a cumulative effect adjustment
as of October 1, 2017 in the amount of $392,000 and reduced income tax expense by approximately $135,000 for
the year ended September 29, 2018. The ASU clarifies the classification of certain share-based payment
activities within the statements of cash flows. We have elected to prospectively present the amount of excess tax
benefits related to stock compensation as a component of cash flows from operating activities and not adjust prior
periods. Additionally, cash payments made to taxing authorities on an employee’s behalf when directly
withholding shares for tax-withholding purposes, which were previously included as cash flows from operating
activities, are now required to be presented as cash flows from financing activities within the statement of cash
flows. Such amounts were not material to our consolidated financial statements.
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 have a significant impact on 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. The Company continues to monitor
additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may, in
conjunction with the completion of the Company’s overall assessment of the new guidance, impact the
Company’s current conclusions.
In January 2016, FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement
of Financial Assets and Financial Liabilities. The guidance will require equity investments in unconsolidated
entities (other than those accounted for using the equity method of accounting) to be measured at fair value with
changes in fair value recognized in net income. The amendments in this update will also simplify the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to
identify impairment, eliminate the requirement for public business entities to disclose the method and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet and require these entities to use the exit price notion when measuring fair
value of financial instruments for disclosure purposes. This guidance also changes the presentation and
disclosure requirements for financial instruments as well as clarifying the guidance related to valuation allowance
assessments when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt
securities. The amendments in this guidance are effective for 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
- 26 -
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 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 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. We do not expect the adoption of this guidance to have a
material impact on our 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.
In August 2018, the FASB issued ASU No. 2018-16 Intangibles—Goodwill and Other—Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract, which provides guidance for the accounting for implementation costs of
hosting arrangements that are considered service contracts. This pronouncement is effective for annual periods
beginning after December 15, 2020 and interim periods within annual periods after December 15, 2021. We do
not expect the adoption of this guidance to have a material impact on our 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.
- 27 -
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:
September 29,
2018
September 30,
2017
(in thousands)
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid and refundable income taxes
Prepaid expenses and other current assets
Due from Ark Restaurants Corp. and affiliates (1)
Fixed assets - net
Other assets
Total assets
Accounts payable - trade
Accrued expenses and other current liabilities
Operating lease deferred credit
Total liabilities
Equity of variable interest entities
Total liabilities and equity
$
$
181
354
19
241
51
338
-
82
1,266
363
367
22
226
63
534
6
71
1,652
$
$
$
158
348
(21)
485
781
$
1,266
$
116
260
51
427
1,225
$
1,652
(1) Amounts due from Ark Restaurants Corp. and affiliates are eliminated upon consolidation.
The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the
Company’s general assets; rather, they represent claims against the specific assets of the consolidated VIEs.
Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could
be used to satisfy claims against the Company’s general assets.
3. RECENT RESTAURANT EXPANSION
On 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):
Inventory
Land and buildings
Furniture, fixtures and equipment
Trademarks
Goodwill
$
293
6,650
395
1,720
1,985
$
11,043
The Consolidated Statement of Income for the year ended September 30, 2017 includes revenues and pre-tax
income of approximately $11,804,000 and $1,243,000, respectively, related to the Oyster House properties. The
unaudited pro forma financial information set forth below is based upon the Company’s historical Consolidated
Statements of Income for the year ended September 30, 2017 and includes the results of operations for the Oyster
House properties for the periods prior to acquisition. The unaudited pro forma financial information is presented
- 28 -
for informational purposes only and may not be indicative of what actual results of operations would have been
had the acquisition of the Oyster House properties occurred on the dates indicated, nor does it purport to
represent the results of operations for future periods.
Total revenues
Net income
Net income per share - basic
Net income per share - diluted
Basic
Diluted
Year Ended
September 30,
2017
(unaudited)
$
$
$
$
155,690
4,246
1.24
1.20
3,424
3,531
4. RECENT RESTAURANT DISPOSITIONS
Lease Expirations – 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 $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 $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
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.
- 29 -
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. We have
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 $0 and $9,000 at
September 29, 2018 and September 30, 2017, 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 discussed above. The principal and accrued interest related to
this note in the amounts of $1,928,000 and $1,871,000, are included in Investment In and Receivable From New
Meadowlands Racetrack in the Consolidated Balance Sheets at September 29, 2018 and September 30, 2017,
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.
No events or changes in circumstances have occurred during the year ended September 29, 2018 that have had a
significant adverse effect on the fair value our Investment in NMR. As a result of the above, no impairment was
deemed necessary as of September 29, 2018.
6. FIXED ASSETS
Fixed assets consist of the following:
September 29,
2018
September 30,
2017
(In thousands)
$
18,029
53,310
37,910
59
109,308
64,044
$
17,164
50,127
35,978
980
104,249
59,034
$
45,264
$
45,215
Land and building
Leasehold improvements
Furniture, fixtures and equipment
Construction in progress
Less: accumulated depreciation and amortization
- 30 -
Depreciation and amortization expense related to fixed assets for the years ended September 29, 2018 and
September 30, 2017 was $5,014,000 and $4,096,000, 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:
Purchased leasehold rights (a)
Noncompete agreements and other
September 29,
2018
September 30,
2017
(In thousands)
$
2,395
253
2,648
$
2,395
253
2,648
Less accumulated amortization
2,299
2,239
Total intangible assets
$
349
$
409
(a)
Purchased leasehold rights arose from acquiring leases and subleases of various restaurants.
Amortization expense related to intangible assets for the years ended September 29, 2018 and September 30,
2017 was $60,000 and $42,000, respectively. Amortization expense for each of the next five years is expected to
be $38,000.
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 29, 2018 and
September 30, 2017 are as follows:
Goodwill
Trademarks
(In thousands)
Balance as of October 1, 2016
$
7,895
$
Acquired during the year
Impairment losses
Balance as of September 30, 2017
Acquired during the year
Impairment losses
1,985
-
9,880
-
-
1,611
1,720
-
3,331
-
-
Balance as of September 29, 2018
$
9,880
$
3,331
- 31 -
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
Sales tax payable
Accrued wages and payroll related costs
Customer advance deposits
Accrued occupancy and other operating expenses
9. NOTES PAYABLE – BANK
Long-term debt consists of the following:
September 29,
2018
September 30,
2017
(In thousands)
$
820
3,226
4,439
2,217
$
813
2,475
4,186
2,702
$
10,702
$
10,176
September 29,
2018
September 30,
2017
(In thousands)
Promissory Note - Rustic Inn purchase
Promissory Note - Shuckers purchase
Promissory Note - Oyster House purchase
Credit Facility
$
4,327
5,015
5,346
6,568
$
2,290
3,083
6,667
6,198
Less: Current maturities
Less: Unamortized deferred financing costs
21,256
(1,251)
(145)
18,238
(10,372)
(42)
Long-term debt
$
19,860
$
7,824
- 32 -
On June 1, 2018, the Company refinanced its then existing indebtedness with its current lender, Bank Hapoalim
B.M. (“BHBM”), by entering into an amended and restated credit agreement (the “New Revolving Facility”),
which expires on May 31, 2021. The New Revolving Facility provides for total availability of the lesser of (i)
$10,000,000 and (ii) $25,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM.
Borrowings under the New Revolving Facility are payable upon maturity of the New Revolving Facility with
interest payable monthly at LIBOR plus 3.25%, subject to adjustment based on certain ratios. As of September
29, 2018 and September 30, 2017, borrowings of $6,568,000 and $6,198,000, respectively, were outstanding
under the Revolving Facility and had a weighted average interest rate of 5.4% and 4.7%, respectively.
In connection with the refinancing, the Company also amended the principal amounts and payment terms of its
outstanding term notes with BHBM as follows:
Promissory Note – Rustic Inn purchase – On February 25, 2013, the Company issued a promissory note
to 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 was payable in 60
equal monthly installments of $134,722, which commenced on March 25, 2014. In connection with the
above refinancing, this note was amended and restated and increased by $2,783,333 of credit facility
borrowings. The new principal amount of $4,400,000, which is secured by a mortgage on The Rustic
Inn real estate, is payable in 27 equal quarterly installments of $73,334, which commenced on
September 1, 2018, with a balloon payment of $2,419,990 on June 1, 2025 and bears interest at LIBOR
plus 3.25% per annum.
Promissory Note – Shuckers purchase – 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 bore interest at
LIBOR plus 3.5% per annum, and was payable in 60 equal monthly installments of $83,333,
commencing on November 22, 2015. In connection with the above refinancing, this note was amended
and restated and increased by $2,433,324 of credit facility borrowings. The new principal amount of
$5,100,000, which is secured by a mortgage on the Shuckers real estate, is payable in 27 equal quarterly
installments of $85,000, which commenced on September 1, 2018, with a balloon payment of
$2,804,988 on June 1, 2025 and bears interest at LIBOR plus 3.25% per annum.
Promissory Note – Oyster House purchase – 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 bore interest at LIBOR plus 3.5% per annum, and was payable in 60
equal monthly installments of $133,273, commencing on January 1, 2017. In connection with the
above refinancing, this note was amended and restated and separated into two notes. The first note, in
the principal amount of $3,300,000, is secured by a mortgage on the Oyster House Gulf Shores real
estate, is payable in 19 equal quarterly installments of $117,854, which commenced on September 1,
2018, with a balloon payment of $1,060,717 on June 1, 2023 and bears interest at LIBOR plus 3.5% per
annum. The second note, in the principal amount of $2,200,000, is secured by a mortgage on the
Oyster House Spanish Fort real estate, is payable in 27 equal quarterly installments of $36,667, which
commenced on September 1, 2018, with a balloon payment of $1,209,995 on June 1, 2025 and bears
interest at LIBOR plus 3.25% per annum.
Deferred financing costs incurred in connection with the Revolving Facility in the amount of $125,000 are being
amortized over the life of the agreements on a straight-line basis and included in interest expense. Amortization
expense was $21,000 and $46,000 for the years ended September 29, 2018 and September 30, 2017, respectively.
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
- 33 -
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 29, 2018.
As of September 29, 2018, the aggregate amounts of notes payable maturities are as follows:
2019
2020
2021
2022
2023
$
1,251
1,251
1,251
1,251
2,076
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 29, 2018, future minimum lease payments under noncancelable leases are as follows:
Fiscal Year
2019
2020
2021
2022
2023
Thereafter
Amount
(In thousands)
$
9,529
9,041
7,993
7,496
6,759
31,578
Total minimum payments
$
72,396
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 $14,649,000 and $13,547,000 for the fiscal years ended September 29, 2018
and September 30, 2017, respectively. Contingent rentals, included in rent expense, were approximately
$5,454,000 and $4,420,000 for the fiscal years ended September 29, 2018 and September 30, 2017, respectively.
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
- 34 -
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 workers’ 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.
The Company’s defined contribution savings plan is currently under examination by the United States
Department of Labor. The Company does not expect a material liability to result from this examination.
11. STOCK OPTIONS
The Company has options outstanding under two stock option plans, the 2010 Stock Option Plan (the “2010
Plan”) and the 2016 Stock Option Plan (the “2016 Plan”). Options granted under both plans are exercisable at
prices at least equal to the fair market value of such stock on the dates the options were granted and expire ten
years after the date of grant.
On August 10, 2018, options to purchase 5,000 shares of common stock were granted at an exercise price of
$20.36 per share and on September 4, 2018 options to purchase 20,000 shares of common stock were granted at
an exercise price of $22.30 per share. Both grants are exercisable as to 50% of the shares commencing on the
date of grant and as to an additional 50% commencing on the first anniversary of the date of grant. Such options
had an aggregate grant date fair value of approximately $94,000. The Company did not grant any options during
the fiscal year 2017. The Company generally issues new shares upon the exercise of employee stock options.
The fair value of each of the Company’s stock options is estimated on the date of grant using a Black-Scholes
option-pricing model that uses assumptions that relate to the expected volatility of the Company’s common stock,
the expected dividend yield of the Company’s stock, the expected life of the options and the risk-free interest
rate. The assumptions used for the 2018 grant include a risk-free interest rates of 2.87% - 2.90%, volatility of
30.7%, a dividend yield of 5.6% and an expected life of 10 years.
During the year ended September 29, 2018, options to purchase 26,050 shares of common stock at a weighted
average exercise price of $18.60 per share expired unexercised or were forfeited. 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 year ended September 30, 2017. The following table
summarizes stock option activity under all plans:
2018
Weighted Weighted
Average
Average
Exercise Contractual
Shares
Price
Term
Aggregate
Intrinsic
Value
Shares
2017
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
421,800
$
17.86
5.2 Years
518,608
$
20.29
25,000
(42,000)
(26,050)
$
$
$
21.91
14.39
18.60
-
(6,808)
(90,000)
$
$
17.15
32.15
378,750
$
18.46
4.8 Years
$
1,824,400
421,800
$
17.86
$
2,745,156
Outstanding, beginning of period
Options:
Granted
Exercised
Canceled or expired
Outstanding and expected to vest,
end of period
Exercisable, end of period
366,250
$
18.35
4.6 Years
$
1,807,300
421,800
$
17.86
$
2,745,156
Shares available for future grant
475,000
500,000
- 35 -
Compensation cost charged to operations for the fiscal years ended September 29, 2018 and September 30, 2017
for share-based compensation programs was approximately $47,000 and $0, respectively. The compensation cost
recognized is classified as a general and administrative expense in the Consolidated Statements of Income.
As of September 29, 2018, there was approximately $47,000 of unrecognized compensation cost related to
unvested stock options, which is expected to be recognized over a period of one year.
The following table summarizes information about stock options outstanding as of September 29, 2018:
Options Outstanding
Options Exercisable
Range of Exercise Prices
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
contractual
life (in years)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
contractual
life (in years)
Number of
Shares
$12.04
$14.40
$22.50
$20.26 - $22.30
35,000
141,750
177,000
25,000
$
$
$
$
12.04
14.40
22.50
21.91
378,750
$
18.46
0.6
3.7
5.7
9.9
4.8
35,000
141,750
177,000
12,500
$
$
$
$
12.04
14.40
22.50
21.91
366,250
$
18.35
0.6
3.7
5.7
9.9
4.6
The Company also maintains a Section 162(m) Cash Bonus Plan. 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.
12. INCOME TAXES
On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the Tax
Cuts and Jobs Act (“TCJA”). Under Accounting Standards Codification (“ASC”) 740, the effects of changes in
tax rates and laws are recognized in the period which the new legislation is enacted. The TCJA makes broad and
complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax
rate from 35% to 21% effective January 1, 2018; (2) changing rules related to uses and limitations of net
operating loss carryforwards created in tax years beginning after December 31, 2017; (3) accelerated expensing
on certain qualified property; (4) creating a new limitation on deductible interest expense to 30% of tax adjusted
EBITDA through 2021 and then 30% of tax adjusted EBIT thereafter; (5) eliminating the corporate alternative
minimum tax; and (6) further limitations on the deductibility of executive compensation under IRC §162(m) for
tax years beginning after December 31, 2017. As the reduction in the U.S. federal corporate tax rate is
administratively effective on January 1, 2018, our blended U.S. federal tax rate for the year ended September 29,
2018 was approximately 24%.
In response to the TCJA, the U.S. Securities and Exchange Commission (“SEC”) staff issued Staff Accounting
Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of TCJA. The purpose
of SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes in the
reporting period in which the TCJA was enacted. SAB 118 addresses situations where the accounting is
incomplete for certain income tax effects of the TJCA upon issuance of a company’s financial statements for the
reporting period which include the enactment date. SAB 118 allows for a provisional amount to be recorded if it
is a reasonable estimate of the impact of the TCJA. Additionally, SAB 118 allows for a measurement period to
finalize the impacts of the TCJA, not to extend beyond one year from the date of enactment.
- 36 -
In connection with the TCJA, the Company recorded an income tax benefit of $1,382,000 related to the re-
measurement of our deferred tax assets and liabilities for the reduced U.S. federal corporate tax rate of 21%. The
Company’s accounting for the TCJA is complete as of September 29, 2018 with no significant differences from
our provisional estimates recorded during interim periods.
The provision for income taxes consists of the following:
Current provision (benefit):
Federal
State and local
Deferred provision (benefit):
Federal
State and local
Year Ended
September 29,
2018
September 30,
2017
(In thousands)
$
30
320
350
$
(144)
287
143
(798)
(699)
(1,497)
1,391
134
1,525
$
(1,147)
$
1,668
The effective tax rate differs from the U.S. income tax rate as follows:
Provision at Federal statutory rate
(24% in 2018 and 34% in 2017)
State and local income taxes, net of
tax benefits
Tax credits
Income attributable to non-controlling interest
Changes in tax rates
Impact of Federal tax reform
Change in valuation allowance
Other
Year Ended
S eptember 29,
2018
S eptember 30,
2017
(In thousands)
$
953
$
2,185
-
(789)
(102)
181
(1,382)
(43)
35
255
(632)
(244)
8
-
-
96
$
(1,147)
$
1,668
- 37 -
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:
Deferred tax assets:
State net operating loss carryforwards
Operating lease deferred credits
Deferred compensation
Tax credits
Other
Deferred tax assets, before valuation allowance
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Partnership investments
Prepaid expenses
Deferred tax liabilities
September 29,
2018
September 30,
2017
(In thousands)
$
$
4,141
513
364
802
98
5,918
(311)
5,607
(2,080)
(329)
(210)
(2,619)
3,210
826
580
-
99
4,715
(354)
4,361
(2,160)
(291)
(419)
(2,870)
Net deferred tax assets (liabilities)
$
2,988
$
1,491
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 $311,000 and
$354,000 as of September 29, 2018 and September 30, 2017, respectively; attributable to state and local net
operating loss carryforwards which are not realizable on a more-likely-than-not basis. During fiscal 2018, the
Company’s valuation allowance decreased by approximately $43,000 as the Company determined that certain state
net operating losses became realizable on a more-likely-than-not basis.
As of September 29, 2018, the Company had General Business Credit carryforwards of approximately $802,000
which expires in fiscal 2038. In addition, the Company has New York State net operating losses of approximately
$21,544,000 and New York City net operating loss carryforwards of approximately $19,963,000 that expire
through fiscal 2038.
During fiscal 2017, certain equity compensation awards expired unexercised. As such, the Company reversed the
related deferred tax asset in the amount of approximately $389,000 as a charge to Additional Paid-in Capital as
there was a sufficient pool of windfall tax benefit available.
- 38 -
A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding interest and penalties
is as follows:
Balance at beginning of year
Additions based on tax positions taken in current and prior
years
Settlements
Decreases based on tax positions taken in prior years
Balance at end of year
$
$
September 29,
2018
September 30,
2017
(In thousands)
152
$
367
125
(167)
-
110
$
15
(134)
(96)
152
The entire amount of unrecognized tax benefits if recognized would reduce our annual effective tax rate. As of
September 29, 2018, the Company accrued approximately $66,000 of interest and penalties as a component of
income tax expense. The Company expects that its unrecognized tax benefits will further decline over the next
12 months to the anticipated resolution of various tax examinations.
The Company files tax returns in the U.S. and various state and local jurisdictions with varying statutes of
limitations. The 2015 through 2018 fiscal years remain subject to examination by the Internal Revenue Service
and most state and local tax authorities.
13. INCOME PER SHARE OF COMMON STOCK
Basic earnings per share is computed by dividing net income attributable to Ark Restaurants Corp. by the
weighted-average number of common shares outstanding for the period. Our diluted earnings per share is
computed similarly to basic earnings per share, except that it reflects the effect of common shares issuable upon
exercise of stock options, using the treasury stock method in periods in which they have a dilutive effect.
A reconciliation of the numerators and denominators of the basic and diluted per share computations for the fiscal
years ended September 29, 2018 and September 30, 2017 follows:
Year ended September 29, 2018
Basic
Effect of dilutive securities:
Stock options
Diluted
Year ended September 30, 2017
Basic
Effect of dilutive securities:
Stock options
Diluted
Net Income
Attributable to
Ark Restaurants
Corp.
(Numerator)
Weighted-
Average
Number of
Shares
(Denominator)
Earnings
Per Share
Amount
(In thousands, except per share amounts)
4,655
-
3,439
$
1.35
110
(0.04)
4,655
$
3,549
$
1.31
4,039
-
4,039
3,424
$
1.18
107
(0.04)
3,531
$
1.14
$
$
$
$
- 39 -
14. RELATED PARTY TRANSACTIONS
Employee receivables totaled approximately $386,000 and $399,000 at September 29, 2018 and September 30,
2017, respectively. Such amounts consist of loans that are payable on demand and bear interest at the minimum
statutory rate (1.63% at September 29, 2018 and 1.29% at September 30, 2017).
Prior to joining the Company on September 4, 2018, the Chief Financial Officer was a member of a firm that
provided consulting services to the Company. Total fees billed by this firm were $303,000 and $178,000 for the
years ended September 29, 2018 and September 30, 2017, respectively. The Company ceased utilizing the
services of this firm upon hiring of the Chief Financial Officer.
15. SUBSEQUENT EVENTS
On October 12, 2018, the Company filed a registration statement on Form S-8 to register the 500,000 shares of
common stock under the Company’s 2016 Plan.
On December 3, 2018, 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, 2019 to shareholders of record at the close of business on December 18,
2018.
- 40 -