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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
__________
Commission file number 1-09453
ARK RESTAURANTS CORP.
(Exact name of registrant as specified in its charter)
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New York |
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13-3156768 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(IRS Employer Identification No.) |
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85 Fifth Avenue, |
New York, |
NY |
10003 |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number, including area code:
(212) 206-8800
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Common Stock, par value $.01 per share |
ARKR |
The NASDAQ Stock Market LLC |
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and "emerging growth company" in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
☐ |
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Non-accelerated filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Yes
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No
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Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act Rule 12b-2). Yes
☐
No
ý
As of May 12, 2022, there were 3,552,344 shares of the
registrant's common stock outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
On one or more occasions, we may make statements in this Quarterly
Report on Form 10-Q regarding our assumptions, projections,
expectations, targets, intentions or beliefs about future events.
All statements, other than statements of historical facts, included
or incorporated by reference herein relating to management’s
current expectations of future financial performance, continued
growth and changes in economic conditions or capital markets are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
Words or phrases such as “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “plans,” “predicts,” “projects,” “targets,”
“will likely result,” “hopes,” “will continue” or similar
expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties which could cause actual
results or outcomes to differ materially from those expressed. We
caution that while we make such statements in good faith and we
believe such statements are based on reasonable assumptions,
including without limitation, management’s examination of
historical operating trends, data contained in records and other
data available from third parties, we cannot assure you that our
projections will be achieved. Factors that may cause such
differences include: economic conditions generally and in each of
the markets in which we are located, the amount of sales
contributed by new and existing restaurants, labor costs for our
personnel, fluctuations in the cost of food products, adverse
weather conditions, changes in consumer preferences and the level
of competition from existing or new competitors.
While we believe that our assumptions are reasonable, we caution
that it is very difficult to predict the impact of unknown factors,
and it is impossible for us to anticipate all factors that could
affect our actual results. All forward-looking statements are
expressly qualified in their entirety by these cautionary
statements. You should evaluate all forward-looking statements made
in this report in the context of the factors that could cause
outcomes to differ materially from our expectations. These factors
include, but are not limited to:
•the
risk associated with the continued impacts of the COVID-19 pandemic
on our company, our employees, our customers, our partners, our
industry and the economy as a whole, including the potential for a
complete shutdown of our restaurants, supply chain disruptions,
demonstrations, political unrest and potential damage to our
restaurants;
•the
adverse impact of current and future economic conditions on our (i)
operating results and financial condition, (ii) ability to comply
with the terms and covenants of our debt agreements, and (iii)
ability to pay or refinance our existing debt or to obtain
additional financing;
•the
adverse impact of the current political climate on our (i)
operating results and financial condition, (ii) ability to comply
with the terms and covenants of our debt agreements, and (iii)
ability to pay or refinance our existing debt or to obtain
additional financing;
•increases
in food, beverage and supply costs, especially for seafood,
shellfish, chicken and beef;
•increases
in wages and benefit costs, including the cost of group medical
insurance;
•our
ability to open new restaurants in new and existing markets,
including difficulty in finding sites and in negotiating acceptable
leases;
•vulnerability
to changes in consumer preferences and economic
conditions;
•vulnerability
to conditions in the cities in which we operate;
•vulnerability
to adverse weather conditions and natural disasters given the
geographic concentration and real estate intensive nature of our
business;
•our
ability to extend existing leases on favorable terms;
•negative
publicity, whether or not valid, and our ability to respond to and
effectively manage the accelerated impact of social
media;
•concerns
about food safety and quality and about food-borne
illnesses;
•the
reliance of the Company on the continued service of its executive
officers;
•the
impact of any security breaches of confidential customer
information in connection with our electronic process of credit and
debit card transactions; and
•the
impact of any failure of our information technology system or any
breach of our network security.
We caution you that the important factors referenced above may not
contain all of the factors that are important to you. In addition,
we cannot assure you that we will realize the results or
developments we expect or anticipate or, even if substantially
realized, that they will result in the consequences we anticipate
or affect us or our operations in the ways that we expect. The
forward-looking statements included in this report are made only as
of the date hereof. We undertake no obligation to publicly update
or revise any forward-looking statement as a result of new
information, future events or otherwise, except as required by law.
If we do update one or more forward-looking statements, no
inference should be made that we will make additional updates with
respect to those or other forward-looking statements. We qualify
all of our forward-looking statements by these cautionary
statements.
From time to time, oral or written forward-looking statements are
also included in our reports on Forms 10-K, 10-Q, and 8-K, our
Schedule 14A, our press releases and other materials released to
the public. Although we believe that at the time made, the
expectations reflected in all of these forward-looking statements
are and will be reasonable, any or all of the forward-looking
statements may prove to be incorrect. This may occur as a result of
inaccurate assumptions or as a consequence of known or unknown
risks and uncertainties. Many factors discussed in this Quarterly
Report on Form 10-Q, certain of which are beyond our control, will
be important in determining our future performance. Consequently,
actual results may differ materially from those that might be
anticipated from forward-looking statements. In light of these and
other uncertainties, you should not regard the inclusion of a
forward-looking statement in this Quarterly Report on Form 10-Q or
other public communications that we might make as a representation
by us that our plans and objectives will be achieved, and you
should not place undue reliance on such forward-looking
statements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. However, your attention is directed to
any further disclosures made on related subjects in our subsequent
periodic reports filed with the Securities and Exchange Commission
on Forms 10-Q, 10-K, 8-K and Schedule 14A.
Unless the context requires otherwise, references to “we,” “us,”
“our,” “ARKR” and the “Company” refer specifically to Ark
Restaurants Corp., and its subsidiaries, partnerships, variable
interest entities and predecessor entities.
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
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April 2,
2022 |
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October 2,
2021 |
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(unaudited) |
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(Note 1) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents (includes $277 at April 2, 2022 and
$785 at October 2, 2021 related to VIEs)
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$ |
18,542 |
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$ |
19,171 |
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Accounts receivable (includes $392 at April 2, 2022 and $358
at October 2, 2021 related to VIEs)
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3,967 |
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4,113 |
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Employee receivables |
324 |
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380 |
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Inventories (includes $40 at April 2, 2022 and $35 at
October 2, 2021 related to VIEs)
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4,240 |
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3,510 |
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Prepaid and refundable income taxes (includes $280 at April 2,
2022 and $278 at October 2, 2021 related to VIEs)
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3,839 |
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3,896 |
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Prepaid expenses and other current assets (includes $128 at
April 2, 2022 and $277 at October 2, 2021 related to
VIEs)
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3,395 |
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3,205 |
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Total current assets |
34,307 |
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34,275 |
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FIXED ASSETS - Net (includes $210 at April 2, 2022 and $218 at
October 2, 2021 related to VIEs)
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35,154 |
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36,174 |
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OPERATING LEASE RIGHT-OF-USE ASSETS - Net (includes $2,211 at
April 2, 2022 and $2,342 at October 2, 2021 related to
VIEs)
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52,575 |
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56,336 |
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INTANGIBLE ASSETS - Net |
315 |
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376 |
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GOODWILL |
17,440 |
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17,440 |
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TRADEMARKS |
4,220 |
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4,220 |
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DEFERRED INCOME TAXES |
3,470 |
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3,700 |
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INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS
RACETRACK |
6,445 |
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6,425 |
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OTHER ASSETS (includes $82 at April 2, 2022 and
October 2, 2021 related to VIEs)
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2,242 |
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2,270 |
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TOTAL ASSETS |
$ |
156,168 |
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$ |
161,216 |
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LIABILITIES
AND EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable - trade (includes $122 at April 2, 2022 and
$213 at October 2, 2021
related to VIEs)
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$ |
4,909 |
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$ |
4,886 |
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Accrued expenses and other current liabilities (includes $554 at
April 2, 2022 and $374 at October 2, 2021 related to
VIEs)
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13,912 |
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13,679 |
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Current portion of operating lease liabilities (includes $260 at
April 2, 2022 and $249 at
October 2, 2021 related to
VIEs)
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5,880 |
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6,165 |
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Current portion of notes payable (includes $0 at April 2, 2022
and $95 at October 2, 2021 related
to VIEs)
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5,839 |
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6,973 |
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|
Total current liabilities |
30,540 |
|
|
31,703 |
|
|
OPERATING LEASE LIABILITIES, LESS CURRENT PORTION (includes $2,061
at April 2, 2022 and $2,193 at October 2, 2021 related to
VIEs)
|
49,388 |
|
|
52,552 |
|
|
NOTES PAYABLE, LESS CURRENT PORTION, net of deferred financing
costs (includes $0 at April 2, 2022 and $101 at
October 2, 2021 related to VIEs)
|
22,121 |
|
|
25,509 |
|
|
TOTAL LIABILITIES |
102,049 |
|
|
109,764 |
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
EQUITY: |
|
|
|
|
Common stock, par value $0.01 per share - authorized, 10,000
shares; issued and outstanding,
3,552 shares at April 2, 2022 and
3,551 at October 2, 2021
|
36 |
|
|
36 |
|
|
Additional paid-in capital |
14,651 |
|
|
14,492 |
|
|
Retained earnings |
39,148 |
|
|
35,884 |
|
|
Total Ark Restaurants Corp. shareholders’ equity |
53,835 |
|
|
50,412 |
|
|
NON-CONTROLLING INTERESTS |
284 |
|
|
1,040 |
|
|
TOTAL EQUITY |
54,119 |
|
|
51,452 |
|
|
TOTAL LIABILITIES AND EQUITY |
$ |
156,168 |
|
|
$ |
161,216 |
|
See notes to consolidated condensed financial
statements.
|
|
|
|
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
April 2,
2022 |
|
April 3,
2021 |
|
April 2,
2022 |
|
April 3,
2021 |
|
REVENUES: |
|
|
|
|
|
|
|
|
Food and beverage sales |
$ |
38,822 |
|
|
$ |
25,181 |
|
|
$ |
82,058 |
|
|
$ |
45,070 |
|
|
Other revenue |
764 |
|
|
586 |
|
|
1,513 |
|
|
996 |
|
|
Total revenues |
39,586 |
|
|
25,767 |
|
|
83,571 |
|
|
46,066 |
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
Food and beverage cost of sales |
12,255 |
|
|
7,764 |
|
|
24,796 |
|
|
13,705 |
|
|
Payroll expenses |
13,482 |
|
|
8,391 |
|
|
27,722 |
|
|
17,041 |
|
|
Occupancy expenses |
4,616 |
|
|
3,523 |
|
|
9,848 |
|
|
6,997 |
|
|
Other operating costs and expenses |
4,840 |
|
|
3,529 |
|
|
9,978 |
|
|
6,339 |
|
|
General and administrative expenses |
3,018 |
|
|
3,036 |
|
|
5,982 |
|
|
4,824 |
|
|
Depreciation and amortization |
1,148 |
|
|
1,021 |
|
|
2,227 |
|
|
1,963 |
|
|
Total costs and expenses |
39,359 |
|
|
27,264 |
|
|
80,553 |
|
|
50,869 |
|
|
OPERATING INCOME (LOSS) |
227 |
|
|
(1,497) |
|
|
3,018 |
|
|
(4,803) |
|
|
OTHER (INCOME) EXPENSE: |
|
|
|
|
|
|
|
|
Interest expense |
262 |
|
|
308 |
|
|
547 |
|
|
632 |
|
|
Interest income |
(12) |
|
|
(13) |
|
|
(22) |
|
|
(27) |
|
|
Other income |
(125) |
|
|
— |
|
|
(347) |
|
|
— |
|
|
Gain on forgiveness of PPP Loans |
(1,122) |
|
|
(4,124) |
|
|
(1,122) |
|
|
(4,124) |
|
|
Total other (income) expense, net |
(997) |
|
|
(3,829) |
|
|
(944) |
|
|
(3,519) |
|
|
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES |
1,224 |
|
|
2,332 |
|
|
3,962 |
|
|
(1,284) |
|
|
Provision (benefit) for income taxes |
76 |
|
|
(1,921) |
|
|
385 |
|
|
(4,839) |
|
|
CONSOLIDATED NET INCOME |
1,148 |
|
|
4,253 |
|
|
3,577 |
|
|
3,555 |
|
|
Net income attributable to non-controlling interests |
(93) |
|
|
(92) |
|
|
(313) |
|
|
(157) |
|
|
NET INCOME ATTRIBUTABLE TO ARK RESTAURANTS CORP. |
$ |
1,055 |
|
|
$ |
4,161 |
|
|
$ |
3,264 |
|
|
$ |
3,398 |
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER ARK RESTAURANTS CORP. COMMON SHARE: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.30 |
|
|
$ |
1.19 |
|
|
$ |
0.92 |
|
|
$ |
0.97 |
|
|
Diluted |
$ |
0.29 |
|
|
$ |
1.15 |
|
|
$ |
0.91 |
|
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic |
3,552 |
|
|
3,511 |
|
|
3,552 |
|
|
3,507 |
|
|
Diluted |
3,604 |
|
|
3,627 |
|
|
3,600 |
|
|
3,579 |
|
See notes to consolidated condensed financial
statements.
|
|
|
|
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 13 weeks ended April 2, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In Capital |
|
Retained Earnings |
|
Total Ark
Restaurants
Corp.
Shareholders’ Equity |
|
Non-
controlling Interests |
|
Total Equity |
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2022 |
3,551 |
|
|
$ |
36 |
|
|
$ |
14,566 |
|
|
$ |
38,093 |
|
|
$ |
52,695 |
|
|
$ |
731 |
|
|
$ |
53,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
1,055 |
|
|
1,055 |
|
|
93 |
|
|
1,148 |
|
|
Exercise of stock options |
1 |
|
|
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
74 |
|
|
— |
|
|
74 |
|
|
— |
|
|
74 |
|
|
Distributions to non-controlling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(540) |
|
|
(540) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 2, 2022 |
3,552 |
|
|
$ |
36 |
|
|
$ |
14,651 |
|
|
$ |
39,148 |
|
|
$ |
53,835 |
|
|
$ |
284 |
|
|
$ |
54,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 26 weeks ended April 2, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In Capital |
|
Retained Earnings |
|
Total Ark
Restaurants
Corp.
Shareholders’ Equity |
|
Non-
controlling Interests |
|
Total Equity |
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE - October 2, 2021 |
3,551 |
|
|
$ |
36 |
|
|
$ |
14,492 |
|
|
$ |
35,884 |
|
|
$ |
50,412 |
|
|
$ |
1,040 |
|
|
$ |
51,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
3,264 |
|
|
3,264 |
|
|
313 |
|
|
3,577 |
|
|
Exercise of stock options |
1 |
|
|
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
148 |
|
|
— |
|
|
148 |
|
|
— |
|
|
148 |
|
|
Distributions to non-controlling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,069) |
|
|
(1,069) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE - April 2, 2022 |
3,552 |
|
|
$ |
36 |
|
|
$ |
14,651 |
|
|
$ |
39,148 |
|
|
$ |
53,835 |
|
|
$ |
284 |
|
|
$ |
54,119 |
|
See notes to consolidated condensed financial
statements.
|
|
|
|
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 13 weeks ended April 3, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In Capital |
|
Retained Earnings |
|
Total Ark
Restaurants
Corp.
Shareholders’ Equity |
|
Non-
controlling Interests |
|
Total Equity |
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 2, 2021 |
3,502 |
|
|
$ |
35 |
|
|
$ |
13,563 |
|
|
$ |
22,226 |
|
|
$ |
35,824 |
|
|
$ |
618 |
|
|
$ |
36,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
4,161 |
|
|
4,161 |
|
|
92 |
|
|
4,253 |
|
|
Exercise of stock options |
30 |
|
|
— |
|
|
426 |
|
|
— |
|
|
426 |
|
|
— |
|
|
426 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
73 |
|
|
— |
|
|
73 |
|
|
— |
|
|
73 |
|
|
Distributions to non-controlling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
26 |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 3, 2021 |
3,532 |
|
|
$ |
35 |
|
|
$ |
14,062 |
|
|
$ |
26,387 |
|
|
$ |
40,484 |
|
|
$ |
736 |
|
|
$ |
41,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 26 weeks ended April 3, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In Capital |
|
Retained Earnings |
|
Total Ark
Restaurants
Corp.
Shareholders’ Equity |
|
Non-
controlling Interests |
|
Total Equity |
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE - October 3, 2020 |
3,502 |
|
|
$ |
35 |
|
|
$ |
13,503 |
|
|
$ |
22,989 |
|
|
$ |
36,527 |
|
|
$ |
626 |
|
|
$ |
37,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
3,398 |
|
|
3,398 |
|
|
157 |
|
|
3,555 |
|
|
Exercise of stock options |
30 |
|
|
— |
|
|
426 |
|
|
— |
|
|
426 |
|
|
— |
|
|
426 |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
133 |
|
|
— |
|
|
133 |
|
|
— |
|
|
133 |
|
|
Distributions to non-controlling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(47) |
|
|
(47) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE - April 3, 2021 |
3,532 |
|
|
$ |
35 |
|
|
$ |
14,062 |
|
|
$ |
26,387 |
|
|
$ |
40,484 |
|
|
$ |
736 |
|
|
$ |
41,220 |
|
See notes to consolidated condensed financial
statements.
|
|
|
|
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
April 2,
2022 |
|
April 3,
2021 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Consolidated net income |
$ |
3,577 |
|
|
$ |
3,555 |
|
|
Adjustments to reconcile consolidated net income to net cash
provided by (used in) operating activities: |
|
|
|
|
Stock-based compensation |
148 |
|
|
133 |
|
|
Gain on forgiveness of PPP Loans |
(1,122) |
|
|
(4,124) |
|
|
Deferred income taxes |
230 |
|
|
(3,145) |
|
|
Accrued interest on note receivable from NMR |
(20) |
|
|
(27) |
|
|
Depreciation and amortization |
2,227 |
|
|
1,963 |
|
|
Amortization of operating lease assets |
312 |
|
|
1,432 |
|
|
Amortization of deferred financing costs |
24 |
|
|
33 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
146 |
|
|
(1,725) |
|
|
Inventories |
(730) |
|
|
442 |
|
|
Prepaid, refundable and accrued income taxes |
57 |
|
|
(1,701) |
|
|
Prepaid expenses and other current assets |
(190) |
|
|
342 |
|
|
Other assets |
28 |
|
|
(105) |
|
|
Accounts payable - trade |
23 |
|
|
1,354 |
|
|
Accrued expenses and other current liabilities |
253 |
|
|
(71) |
|
|
Net cash provided by (used in) operating activities |
4,963 |
|
|
(1,644) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Purchases of fixed assets |
(1,146) |
|
|
(1,103) |
|
|
Loans and advances made to employees |
(27) |
|
|
(40) |
|
|
Payments received on employee receivables |
83 |
|
|
34 |
|
|
Purchase of Blue Moon Fish Company, net of cash
acquired |
— |
|
|
(1,817) |
|
|
Net cash used in investing activities |
(1,090) |
|
|
(2,926) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Principal payments on notes payable |
(2,468) |
|
|
(1,408) |
|
|
Proceeds from PPP Loans |
— |
|
|
111 |
|
|
Principal payments on PPP Loans |
(976) |
|
|
— |
|
|
Proceeds from issuance of stock upon exercise of stock
options |
11 |
|
|
426 |
|
|
Distributions to non-controlling interests |
(1,069) |
|
|
(47) |
|
|
Net cash used in financing activities |
(4,502) |
|
|
(918) |
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(629) |
|
|
(5,488) |
|
|
CASH AND CASH EQUIVALENTS, Beginning of period |
19,171 |
|
|
16,886 |
|
|
CASH AND CASH EQUIVALENTS, End of period |
$ |
18,542 |
|
|
$ |
11,398 |
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest |
$ |
506 |
|
|
$ |
534 |
|
|
Income taxes |
$ |
11 |
|
|
$ |
7 |
|
|
Non-cash financing activities: |
|
|
|
|
Note payable in connection with the purchase of Blue Moon Fish
Company |
$ |
— |
|
|
$ |
1,000 |
|
See notes to consolidated condensed financial
statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 2, 2022
(Unaudited)
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1. BASIS OF PRESENTATION AND CRITICAL
ACCOUNTING POLICIES
The consolidated condensed balance sheet as of October 2,
2021, which has been derived from the audited consolidated
financial statements included in the Company’s annual report on
Form 10-K for the year ended October 2, 2021 (“Form 10-K”),
and the unaudited interim consolidated condensed financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”) for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission
(the “SEC”). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted. All
adjustments that, in the opinion of management are necessary for a
fair presentation for the periods presented, have been reflected as
required by Article 10 of Regulation S-X. Such adjustments are of a
normal, recurring nature. These consolidated condensed financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Form
10-K.
COVID-19 PANDEMIC — We are subject to continued risks and
uncertainties as a result of the outbreak of, and local, state and
federal governmental responses to, the COVID-19 pandemic which was
declared a National Public Health Emergency in March 2020. We
experienced significant disruptions to our business as suggested
and mandated social distancing and shelter-in-place orders led to
the temporary closure of all of our restaurants. While restrictions
on the type of permitted operating model and occupancy capacity may
continue to change, all of our restaurants are currently operating
with no restrictions. We cannot predict how long the COVID-19
pandemic will last, whether vaccines will be effective at
eliminating or slowing the spread of the virus or variants, whether
it will reoccur or whether variants will spike, what additional
restrictions may be enacted, to what extent we can maintain sales
volumes during or following any resumption of mandated social
distancing protocols or vaccination or mask mandates and what
long-lasting effects the COVID-19 pandemic may have on the
restaurant industry as a whole. The ongoing effects of the COVID-19
pandemic, including, but not limited to, labor-related impacts,
supply chain disruption and consumer behavior, will determine the
continued significance of the impact of the COVID-19 pandemic to
our operating results and financial position.
PRINCIPLES OF CONSOLIDATION — The consolidated condensed 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, collectively herein referred
to as the “Company”. Also included in the consolidated condensed
financial statements are certain variable interest entities
(“VIEs”). All significant intercompany balances and transactions
have been eliminated in consolidation.
USE OF ESTIMATES — The preparation of financial statements in
conformity with GAAP 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: projected cash flows, allowances for potential bad debts
on receivables, assumptions regarding discount rates related to
lease accounting, the useful lives and recoverability of its
assets, such as property and intangibles, fair values of financial
instruments and share-based compensation, estimates made in
connection with acquisitions and impairment analyses, 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. The
results of operations for the 13 and 26 weeks ended April 2,
2022 are not necessarily indicative of the results to be expected
for any other interim period or for the year ending October 1,
2022.
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. Although our business is highly
seasonal, our broader geographical reach as a result of recent
acquisitions mitigates some of the risk. For instance, the second
quarter of our fiscal year, consisting of the non-holiday portion
of the cold weather season in New York and Washington, D.C.
(January, February and March), is the poorest performing quarter;
however, in recent years this has been partially offset by our
locations in Florida as they experience increased results in the
winter months. We generally achieve our best results during the
warm weather, attributable to our extensive outdoor dining
availability, particularly at Bryant Park in New York and Sequoia
in Washington, D.C. (our largest restaurants) and our outdoor
cafes. However, even during summer months these facilities can be
adversely affected by unusually cool or rainy weather conditions.
Our facilities in Las Vegas are indoor and generally operate on a
more consistent basis throughout the year.
FAIR VALUE OF FINANCIAL INSTRUMENTS — The carrying amount of cash
and cash equivalents, receivables and accounts payable 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 dates 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 condensed 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
collected in a short period of time and amounts due from the hotel
operators where the Company has a location, and are recorded upon
satisfaction of the performance obligation. 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 April 2, 2022, the Company had accounts receivable
balances due from one hotel operator totaling 23% of total accounts
receivable. As of October 2, 2021, the Company had accounts
receivable balances due from one hotel operator totaling 37% of
total accounts receivable.
For the 13-week period ended April 2, 2022, the Company did
not make purchases from any one vendor that accounted for more than
10% of total purchases. For the 13-week period ended April 3,
2021, the Company made purchases from one vendor that accounted for
12% of total purchases.
For the 26-week period ended April 2, 2022, the Company did
not make purchases from any one vendor that accounted for more than
10% of total purchases. For the 26-week period ended April 3,
2021, the Company made purchases from one vendor that accounted for
14% of total purchases.
As of April 2, 2022 and October 2, 2021, all debt
outstanding, other than Paycheck Protection Program loans and the
note payable to the sellers of the
Blue Moon Fish Company,
is with one lender (see Note 8 – Notes Payable).
GOODWILL AND TRADEMARKS — Goodwill and trademarks are not
amortized, but are subject to impairment analysis. We assess the
potential impairment of goodwill and trademarks annually (at the
end of our fourth quarter) and on an interim basis whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable. If we determine through the impairment review
process that goodwill or trademarks are impaired, we record an
impairment charge in our consolidated condensed statements of
operations. The Company did not record any impairment to its
goodwill or trademarks during the 13 and 26 weeks ended
April 2, 2022 and April 3, 2021. The ultimate severity and
longevity of the COVID-19 pandemic is unknown, and therefore, it is
possible that impairments could be identified in future periods,
and such amounts could be material.
LONG-LIVED AND RIGHT-OF-USE ASSETS — Long-lived assets, such as
property, plant and equipment, purchased intangibles subject to
amortization, and right-of-use assets ("ROU assets") 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.
The Company considers a triggering event related to long-lived
assets or ROU assets in a net asset position to have occurred
related to a specific restaurant if the restaurant’s cash flows for
the last 12 months are less than a minimum threshold or if
consistent levels of undiscounted cash flows for the remaining
lease period are less than the carrying value of the restaurant’s
assets. Additionally, the Company considers a triggering event
related to ROU assets to have occurred related to a specific lease
if the location has been subleased and future estimated sublease
income is less than current lease payments. If the Company
concludes that the carrying value of certain long-lived and ROU
assets will not be recovered based on expected undiscounted future
cash flows, an impairment loss is recorded to reduce the long-lived
or ROU assets to their estimated fair value. The fair value is
measured on a nonrecurring basis using unobservable (Level 3)
inputs. There is uncertainty in the projected undiscounted future
cash flows used in the Company's impairment review analysis, which
requires the use of estimates and assumptions. If
actual performance does not achieve the projections, or if the
assumptions used change in the future, the Company may be required
to recognize impairment charges in future periods, and such charges
could be material.
Based on the results of this analysis, no impairment charges were
recognized related to long-lived assets and ROU assets during the
13 and 26 weeks ended April 2, 2022. Given the inherent
uncertainty in projecting results of restaurants under the current
circumstances, particularly taking into account the projected
impact of the COVID-19 pandemic, the Company is monitoring the
recoverability of the carrying value of the assets of several
restaurants on an ongoing basis. For these restaurants, if expected
performance is not realized, an impairment charge may be recognized
in future periods, and such charge could be material.
REVENUE RECOGNITION — We recognize revenue upon the satisfaction of
our performance obligation by transferring control over a product
or service to a restaurant guest or other customer. Revenues from
restaurant operations are presented net of discounts, coupons,
employee meals and complimentary meals and recognized when food,
beverage and retail products are sold. Sales tax collected from
customers is excluded from sales and the obligation is included in
sales tax payable until the taxes are remitted to the appropriate
taxing authorities. Catering service revenue is generated through
contracts with customers whereby the customer agrees to pay a
contract rate for the service. Revenues from catered events are
recognized in income upon satisfaction of the performance
obligation (the date the event is held) and all customer payments,
including nonrefundable upfront deposits, are deferred as a
contract liability until such time. We recognized $765,000 and
$71,000 in catering services revenue for the 13-week periods ended
April 2, 2022 and April 3, 2021, respectively, and
$3,978,000 and $208,000 for the 26-week periods ended April 2,
2022 and April 3, 2021, respectively. Unearned revenue, which
is included in accrued expenses and other current liabilities on
the consolidated condensed balance sheets as of April 2, 2022
and October 2, 2021 was $5,770,000 and $4,988,000,
respectively.
Revenues from gift cards are deferred and recognized upon
redemption. Deferrals are not reduced for potential non-use as we
generally have a legal obligation to remit the value of unredeemed
gift cards to the relevant jurisdictions in which they are sold. As
of April 2, 2022 and October 2, 2021, the total liability
for gift cards in the amounts of approximately $331,000 and
$252,000, respectively, are included in accrued expenses and other
current liabilities in the consolidated condensed balance
sheets.
Other revenues include purchase service fees which represent
commissions earned by a subsidiary of the Company for providing
services to other restaurant groups, as well as license fees,
property management fees and other rentals.
LEASES — We determine if an arrangement contains a lease at
inception. An arrangement contains a lease if it implicitly or
explicitly identifies an asset to be used and conveys the right to
control the use of the identified asset in exchange for
consideration. As a lessee, we include operating leases in
Operating lease right-of-use assets and Operating lease liabilities
in our consolidated condensed balance sheet. Right-of-use assets
represent our right to use an underlying asset for the lease term
and lease liabilities represent our obligation to make lease
payments arising from the lease. Operating lease right-of-use
assets and liabilities are recognized upon commencement of the
lease based on the present value of the lease payments over the
lease term. As most of our leases do not provide an implicit
interest rate, we use our incremental borrowing rate based on the
information available at commencement date to determine the present
value of lease payments. Our lease terms may include options to
extend or terminate the lease. Options are included when it
is reasonably certain that we will exercise that option. Lease
expense for lease payments is recognized on a straight-line basis
over the lease term. Amendments or modifications to lease
terms are accounted for as variable lease payments. Leases with a
lease term of 12 months or less are accounted for using the
practical expedient which allows for straight-line rent expense
over the remaining term of the lease.
SEGMENT REPORTING — As of April 2, 2022, the Company owned and
operated 17 restaurants and bars, 17 fast food concepts and
catering operations, exclusively in the United States, that have
similar economic characteristics, nature of products and services,
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.
RECENTLY ADOPTED ACCOUNTING PRINCIPLES — In December 2019, the FASB
issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes ("ASU 2019-12"), which modifies Topic
740 to simplify the accounting for income taxes. ASU 2019-12 is
effective for financial statements issued for annual periods
beginning after December 15, 2020, and for the interim periods
therein. The Company adopted this guidance in the first quarter of
fiscal 2022. Such adoption did not have a material impact on our
consolidated condensed financial statements.
2. VARIABLE INTEREST ENTITIES
The Company consolidates any variable interest entities in which it
holds a variable interest and is the primary beneficiary.
Generally, a variable interest entity, or VIE, is an entity with
one or more of the following characteristics: (a) the total equity
investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial
support; (b) as a group the holders of the equity investment at
risk lack (i) the ability to make decisions about an entity’s
activities through voting or similar rights, (ii) the obligation to
absorb the expected losses of the entity, or (iii) the right to
receive the expected
residual returns of the entity; or (c) the equity investors have
voting rights that are not proportional to their economic interests
and substantially all of the entity’s activities either involve, or
are conducted on behalf of, an investor that has disproportionately
few voting rights. The primary beneficiary of a VIE is generally
the entity that has (a) the power to direct the activities of the
VIE that most significantly impact the VIE’s economic performance,
and (b) the obligation to absorb losses or the right to receive
benefits that could potentially be significant to the
VIE.
The Company has determined that it is the primary beneficiary of
three VIEs and, accordingly, consolidates the financial results of
these entities. Following are the required disclosures associated
with the Company’s consolidated VIEs:
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April 2,
2022 |
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October 2,
2021 |
|
|
(in thousands) |
|
Cash and cash equivalents |
$ |
277 |
|
|
$ |
785 |
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|
Accounts receivable |
392 |
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|
358 |
|
|
Inventories |
40 |
|
|
35 |
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Prepaid and refundable income taxes |
280 |
|
|
278 |
|
|
Prepaid expenses and other current assets |
128 |
|
|
277 |
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Due from Ark Restaurants Corp. and affiliates (1) |
284 |
|
|
187 |
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Fixed assets - net |
210 |
|
|
218 |
|
|
Operating lease right-of-use assets - net |
2,211 |
|
|
2,342 |
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Other assets |
82 |
|
|
82 |
|
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Total assets |
$ |
3,904 |
|
|
$ |
4,562 |
|
|
|
|
|
|
|
Accounts payable - trade |
$ |
122 |
|
|
$ |
213 |
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|
Accrued expenses and other current liabilities |
554 |
|
|
374 |
|
|
Current portion of operating lease liabilities |
260 |
|
|
249 |
|
|
Current portion of notes payable |
— |
|
|
95 |
|
|
Operating lease liabilities, less current portion |
2,061 |
|
|
2,193 |
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|
Notes payable, less current portion |
— |
|
|
101 |
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Total liabilities |
2,997 |
|
|
3,225 |
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Equity of variable interest entities |
907 |
|
|
1,337 |
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Total liabilities and equity |
$ |
3,904 |
|
|
$ |
4,562 |
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(1)Amounts
Due from and to 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 AND OTHER
DEVELOPMENTS
On December 1, 2020, the Company, through a newly formed,
wholly-owned subsidiary, acquired the assets of Bear Ice, Inc. and
File Gumbo Inc., which collectively operated a restaurant and bar
named
Blue Moon Fish Company
located in Lauderdale-by-the- Sea, FL. The total purchase price of
$2,820,000, as set out below, was paid with cash in the amount of
$1,820,000 and a four-year note held by the sellers in the amount
of $1,000,000 payable monthly with 5% interest. The acquisition was
accounted for as a business combination. Concurrent with the
acquisition, the Company assumed the related lease which expires in
2026 and has four five-year extension options. Rent payments under
the lease are approximately $360,000 per year and increase by 15%
as each option is exercised.
The fair values of the assets acquired were allocated as follows
(amounts in thousands):
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Cash |
$ |
3 |
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Inventory |
39 |
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Security deposit |
30 |
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Trademarks |
500 |
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Non-compete agreement |
380 |
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Goodwill |
1,870 |
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Liabilities assumed |
(2) |
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$ |
2,820 |
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Goodwill recognized in connection with this transaction represents
the residual amount of the purchase price over separately
identifiable intangible assets and is expected to be deductible for
tax purposes.
The consolidated condensed statements of operations for the 13 and
26 weeks ended April 3, 2021 include revenues and income of
approximately $1,962,000 and $448,000 and $2,441,000 and $455,000,
respectively, related to
Blue Moon Fish Company.
The unaudited pro forma financial information set forth below is
based upon the Company’s historical consolidated condensed
statements of operations for the 26 weeks ended April 3, 2021
and includes the results of operations for Blue
Moon Fish Company
for the period prior to acquisition. The unaudited pro forma
financial information (which is presented in thousands except per
share and share data), which has been adjusted for interest expense
on the note, is presented for informational purposes only and may
not be indicative of what actual results of operations would have
been had the acquisition of Blue
Moon Fish Company
occurred on the dates indicated, nor does it purport to represent
the results of operations for future periods.
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26 Weeks Ended |
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April 3,
2021 |
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Total revenues |
$ |
46,743 |
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Net income |
$ |
3,433 |
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Net income per share - basic |
$ |
0.98 |
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Net income per share - diluted |
$ |
0.96 |
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Shares - Basic |
3,507 |
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Shares - Diluted |
3,579 |
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On January 26, 2021, the Company exercised its
right-of-first-refusal to acquire the land, building and parking
lot associated with
JB’s on the Beach
and immediately contributed such rights and interest to an
unrelated entity ("Sandcastle 1, LLC ") that purchased the
properties on March 22, 2021. In exchange, the Company received a
5% interest in Sandcastle 1, LLC, which plans future development of
the sites. In addition, all rights and privileges under the current
lease were assigned to Sandcastle 1, LLC, as landlord and the lease
terms remain unchanged.
4. RECENT RESTAURANT
DISPOSITIONS
On November 13, 2020, the Company was advised by the landlord that
it would have to vacate
Gallagher’s Steakhouse
and
Gallagher’s Burger Bar
at the Resorts Casino Hotel located in Atlantic City, NJ which were
on a month-to-month, no rent lease. The closure of these properties
occurred on January 2, 2021 and did not result in a material charge
to the Company’s operations.
As of January 2, 2021, the Company determined that it will not
reopen
Thunder Grill
in Washington, D.C. which has been closed since March 20, 2020.
This closure did not result in a material charge to the Company’s
operations.
On September 1, 2021, the Company closed
Clyde Frazier's Wine and Dine
and terminated the lease. In connection with termination, the
Company recorded a gain of $810,000 during the year ended October
2, 2021 consisting of: (i) rent and other costs incurred in
accordance with the termination provisions of the lease in the
amount of $318,000, (ii) impairment of long-lived assets in the
amount of $69,000 and (iii) the write-off of our security deposit
in the amount of $121,000 offset by the write-off of ROU assets and
related lease liabilities in the net amount of
$1,318,000.
Included in the consolidated condensed statements of operations for
the 13 and 26 weeks ended April 3, 2021 are revenues and net
operating losses of approximately $172,000 and $(709,000) and
$754,000 and $(840,000), respectively, related to the above
properties.
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 then 63.7% ownership interest. On November 19, 2013,
the Company invested an additional $464,000 in NMR through the
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 in February 2017, the Company invested an
additional $222,000 in NMR, both as a result of capital calls with
no change in ownership, bringing its total investment to
$5,108,000. The Company accounts for this investment at cost, less
impairment, adjusted for subsequent observable price changes in
accordance with ASU No. 2016-01. There are no observable prices for
this investment. During the 13 and 26 weeks ended April 2, 2022,
the Company received distributions of $125,000 and $347,000,
respectively, from NMR which have been recorded as other income in
the consolidated condensed statement of operations.
Due to the impacts of the COVID-19 pandemic to the global economy,
the Company evaluated its investment in NMR for impairment and
concluded that its fair value exceeds the carrying value.
Accordingly, the Company did not record any impairment during the
13 and 26 weeks ended April 2, 2022 and April 3, 2021.
The ultimate severity and longevity of the COVID-19 pandemic is
unknown, and therefore, it is possible that impairments could be
identified in future periods, and such amounts could be material.
Any future changes in the carrying value of our investment in NMR
will be reflected in earnings.
In addition to the Company’s ownership interest in NMR through
Meadowlands Newmark, LLC, if casino gaming is approved at the
Meadowlands and NMR is granted the right to conduct said gaming,
neither of which can be assured, the Company shall be granted the
exclusive right to operate the food and beverage concessions in the
gaming facility with the exception of one restaurant.
In conjunction with this investment, the Company, through a 97%
owned subsidiary, Ark Meadowlands LLC (“AM VIE”), also entered into
a long-term agreement with NMR for the exclusive right to operate
food and beverage concessions serving the new raceway facilities
(the “Racing F&B Concessions”) located in the new raceway
grandstand constructed at the Meadowlands Racetrack in northern New
Jersey. Under the agreement, NMR is responsible to pay for the
costs and expenses incurred in the operation of the Racing F&B
Concessions, and all revenues and profits thereof inure to the
benefit of NMR. AM VIE receives an annual fee equal to 5% of the
net profits received by NMR from the Racing F&B Concessions
during each calendar year. 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 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 any receivable from AM VIE’s
primary beneficiary (NMR, a related party). As of April 2,
2022 and October 2, 2021, $72,000 and $0 were due to AM VIE by
NMR.
On April 25, 2014, the Company loaned $1,500,000 to Meadowlands
Newmark, LLC. The note bears interest at 3%, compounded monthly and
added to the principal, and is due in its entirety on January 31,
2024. The note may be prepaid, in whole or in part, at any time
without penalty or premium. On July 13, 2016, the Company made an
additional loan to Meadowlands Newmark, LLC in the amount of
$200,000. Such amount is subject to the same terms and conditions
as the original loan as discussed above. The principal and accrued
interest related to this note in the amounts of $1,337,000 and
$1,317,000 are included in Investment in and Receivable from New
Meadowlands Racetrack in the consolidated condensed balance sheets
at April 2, 2022 and October 2, 2021,
respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued expenses and other current liabilities consist of the
following:
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|
|
|
|
|
|
|
April 2,
2022 |
|
October 2,
2021 |
|
(In thousands) |
|
|
|
|
|
Sales tax payable |
$ |
1,034 |
|
|
$ |
910 |
|
|
Accrued wages and payroll related costs |
4,015 |
|
|
4,758 |
|
|
Customer advance deposits |
5,770 |
|
|
4,988 |
|
|
Accrued occupancy and other operating expenses |
3,093 |
|
|
3,023 |
|
|
|
$ |
13,912 |
|
|
$ |
13,679 |
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7. LEASES
Other than locations where we own the underlying property, we lease
our restaurant locations as well as our corporate office under
various non-cancelable real estate lease agreements that expire on
various dates through 2046. We evaluate whether we control the use
of the asset, which is determined by assessing whether we obtain
substantially all economic benefits from the use of the asset, and
whether we have the right to direct the use of the asset. If these
criteria are met and we have identified a lease, we account for the
contract under the requirements of ASC Topic 842.
Upon taking possession of a leased asset, we determine its
classification as an operating or finance lease. All of our real
estate leases are classified as operating leases. We do not have
any finance leases as of April 2, 2022. Generally, our real
estate leases have initial terms ranging from 10 to 25 years and
typically include renewal options. Renewal options are recognized
as part of the ROU assets and lease liabilities if it is reasonably
certain at the date of adoption that we would exercise the options
to extend the lease. Our real estate leases typically provide for
fixed minimum rent payments and/or contingent rent payments based
upon sales in excess of specified thresholds. When the achievement
of such sales thresholds are deemed to be probable, variable lease
expense is accrued in proportion to the sales recognized during the
period. For operating leases that include rent holidays and rent
escalation clauses, we recognize lease expense on a straight-line
basis over the lease term from the date we take possession of the
leased property. We record the straight-line lease expense and any
contingent rent, if applicable, in occupancy expenses in the
consolidated condensed statements of operations.
Many of our real estate leases also require us to pay real estate
taxes, common area maintenance costs and other occupancy costs
(“non-lease components”) which are included in occupancy related
expenses in the consolidated condensed statements of operations.
Our lease agreements do not contain any material residual value
guarantees or material restrictive covenants.
As there were no explicit rates provided in our leases, we used our
incremental borrowing rate based on the information available at
commencement date in determining the present value of lease
payments.
The components of lease expense in the consolidated condensed
statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
April 2,
2022 |
|
April 3,
2021 |
|
April 2,
2022 |
|
April 3,
2021 |
|
|
(In thousands) |
|
(In thousands) |
|
Operating lease expense - occupancy expenses
(1)
|
$ |
2,624 |
|
|
$ |
1,720 |
|
|
$ |
4,897 |
|
|
$ |
3,937 |
|
|
Occupancy lease expense - general and administrative
expenses |
116 |
|
|
111 |
|
|
209 |
|
|
152 |
|
|
Variable lease expense |
795 |
|
|
956 |
|
|
2,692 |
|
|
1,395 |
|
|
Total lease expense |
$ |
3,535 |
|
|
$ |
2,787 |
|
|
$ |
7,798 |
|
|
$ |
5,484 |
|
_________________________________
(1) Includes
short-term leases, which are immaterial.
Supplemental cash flow information related to leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
April 2,
2022 |
|
April 3,
2021 |
|
|
(In thousands) |
|
Cash paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
Operating cash flows related to
operating leases |
$ |
3,592 |
|
|
$ |
4,118 |
|
|
Non-cash investing activities: |
|
|
|
|
ROU assets obtained in exchange for
new operating lease liabilities |
$ |
— |
|
|
$ |
8,712 |
|
The weighted average remaining lease terms and discount rates as of
April 2, 2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Remaining Lease Term |
|
Weighted Average
Discount Rate |
|
Operating leases |
13.5 years |
|
5.2 |
% |
The annual maturities of our lease liabilities as of April 2,
2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases |
|
Fiscal Year Ending |
|
(In thousands) |
|
October 1, 2022 |
|
$ |
4,525 |
|
|
September 30, 2023 |
|
7,543 |
|
|
September 28, 2024 |
|
7,143 |
|
|
September 27, 2025 |
|
6,116 |
|
|
October 3, 2026 |
|
4,987 |
|
|
Thereafter |
|
47,397 |
|
|
Total future lease commitments |
|
77,711 |
|
|
Less imputed interest |
|
(22,443) |
|
|
Present value of lease liabilities |
|
$ |
55,268 |
|
8. NOTES PAYABLE
Notes payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2,
2022 |
|
October 2,
2021 |
|
|
(In thousands) |
|
|
|
|
|
Promissory Note - Rustic Inn purchase |
$ |
3,330 |
|
|
$ |
3,473 |
|
|
Promissory Note - Shuckers purchase |
3,825 |
|
|
3,995 |
|
|
Promissory Note - Oyster House purchase |
3,182 |
|
|
3,492 |
|
|
Promissory Note - JB's on the Beach purchase |
4,250 |
|
|
4,750 |
|
|
Promissory Note - Sequoia renovation |
1,943 |
|
|
2,171 |
|
|
Promissory Note - Revolving Facility |
8,166 |
|
|
9,166 |
|
|
Promissory Note - Blue Moon Fish Company (see Note 3) |
709 |
|
|
827 |
|
|
Paycheck Protection Program Loans |
2,645 |
|
|
4,722 |
|
|
|
28,050 |
|
|
32,596 |
|
|
Less: Current maturities |
(5,839) |
|
|
(6,973) |
|
|
Less: Unamortized deferred financing costs |
(90) |
|
|
(114) |
|
|
Long-term portion |
$ |
22,121 |
|
|
$ |
25,509 |
|
Notes Payable - Bank
On June 1, 2018, the Company refinanced (the "Refinancing") its
then existing indebtedness with its current lender, Bank Hapoalim
B.M. (“BHBM”), by entering into an amended and restated credit
agreement (the “Revolving Facility”), which was to mature on May
19, 2022 (as extended). The Revolving Facility provided for total
availability of the lesser of (i) $10,000,000 and (ii) $35,000,000
less the then aggregate amount of all indebtedness and obligations
to BHBM. On July 26, 2021, all outstanding borrowings under the
Revolving Facility, in the amount of $9,666,000, were converted to
a promissory note with quarterly principal payments of $500,000
commencing on September 1, 2021, with a balloon payment of
$2,166,000 on June 1, 2025. Such note bears interest at LIBOR plus
3.5% per annum. We expect that the LIBOR rate will be discontinued
at some point during 2022 and to work with BHBM to identify a
suitable replacement rate and amend our debt agreements to reflect
this new reference rate accordingly. We do not expect the
discontinuation of LIBOR as a reference rate in our debt agreements
to have a material adverse effect on our financial position or
materially affect our interest expense.
The Revolving Facility also requires, among other things, that the
Company meet minimum quarterly tangible net worth amounts, maintain
a minimum fixed charge coverage ratio and meet minimum annual net
income amounts. The Revolving Facility contains customary
representations, warranties and affirmative covenants as well as
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.
Borrowings under the Revolving Facility are secured by all tangible
and intangible personal property (including accounts receivable,
inventory, equipment, general intangibles, documents, chattel
paper, instruments, letter-of-credit rights, investment property,
intellectual property and deposit accounts) and fixtures of the
Company.
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
– The 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
$71,333, commencing on September 1, 2018, with a balloon payment of
$2,474,000 on June 1, 2025 and bears interest at LIBOR plus 3.5%
per annum.
•Promissory
Note – Shuckers purchase
– The 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, commencing on September 1, 2018, with a balloon payment of
$2,805,000 on June 1, 2025 and bears interest at LIBOR plus 3.5%
per annum.
•Promissory
Note – Oyster House purchase
– In connection with the 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
$117,857, commencing on September 1, 2018, with a balloon payment
of $1,060,716 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, commencing on September 1, 2018, with a balloon payment of
$1,210,000 on June 1, 2025 and bears interest at LIBOR plus 3.5%
per annum.
•Promissory
Note – JB's on the Beach purchase
–
On May 15, 2019, the Company issued a promissory note under the
Revolving Facility to BHBM for $7,000,000, which is payable
in 23 equal quarterly installments
of $250,000, commencing on September 1, 2019, with a
balloon payment of $1,250,000 on June 1, 2025 and bears interest at
LIBOR plus 3.5% per annum.
•Promissory
Note – Sequoia renovation
– Also on May 15, 2019, the Company converted $3,200,000 of
Revolving Facility borrowings incurred in connection with
the
Sequoia
renovation to a promissory note which is payable
in 23 equal quarterly installments
of $114,286, commencing on September 1, 2019, with a
balloon payment of $571,429 on June 1, 2025 and bears interest at
LIBOR plus 3.5% per annum.
Paycheck Protection Program Loans
During the year ended October 3, 2020, subsidiaries and
consolidated VIEs (the “Borrowers”) of the Company received loan
proceeds from several banks (the “Lenders”) in the aggregate amount
of $14,995,000 (the “PPP Loans”) under the Paycheck Protection
Program (the “PPP”) of the CARES Act, which was enacted March 27,
2020. In addition, during the 13 weeks ended April 3, 2021, one of
our consolidated VIEs received a second draw PPP Loan in the amount
of $111,000. The PPP Loans are evidenced by individual promissory
notes of each of the Borrowers (together, the “Notes”) in favor of
the Lender, which Notes bear interest at the rate of 1.00% per
annum. Funds from the PPP Loans may be used only for payroll and
related costs, costs
used to continue group health care benefits, mortgage payments,
rent, utilities, and interest on other debt obligations that were
incurred by a Borrower prior to February 15, 2020 (the “Qualifying
Expenses”). Under the terms of the PPP Loans, some or all of the
amounts thereunder, including accrued interest, may be forgiven if
they are used for Qualifying Expenses as described in and in
compliance with the CARES Act. Each Note may be prepaid by the
respective Borrower at any time prior to maturity with no
prepayment penalties. No payments of principal or interest are due
under the Notes until the date on which the amount of loan
forgiveness (if any) under the CARES Act for each respective Note
is remitted to the Lender and a forgiveness decision is received by
the Borrower. Forgiveness applications can be submitted up to 10
months after the end of the related notes covered period (which is
defined as 24 weeks after the date of the loan) (the “Deferral
Period”) and the ultimate forgiveness decisions can be made by the
Lenders up to 60 days after submitting the applications and
possibly longer if forgiveness is fully or partially denied and the
Borrower appeals the decision. While the Company and each Borrower
believe that PPP Loan proceeds were used exclusively for Qualifying
Expenses, it is unclear and uncertain whether the conditions for
forgiveness of the remaining PPP Loans outstanding at April 2,
2022 will be met under the current guidelines of the CARES Act.
Therefore, we cannot make any assurances that the Company, or any
of the Borrowers, will be eligible for forgiveness of the remaining
PPP Loans, in whole or in part.
During the 13 weeks ended April 2, 2022 and April 3, 2021,
$1,122,000 and $4,124,000 of PPP Loans, respectively (including
$20,000 and $27,000 of accrued interest) were forgiven. To the
extent that any of the remaining PPP Loans are not forgiven,
beginning one month following expiration of the Deferral Period,
and continuing monthly until 24 months from the date of each
applicable Note (the “Maturity Date”), each respective Borrower is
obligated to make monthly payments of principal and interest to the
Lender with respect to any unforgiven portion of the Notes, in such
equal amounts required to fully amortize the principal amount
outstanding on such Notes as of the last day of the applicable
Deferral Period by the applicable Maturity Date. Accordingly, based
on the above, we have classified the PPP Loan amounts expected to
be forgiven as long-term in accordance with SEC interpretative
guidance and the remaining amounts expected to be repaid in the
next 12 months of $892,000 and $2,032,000 as short-term in the
consolidated condensed balance sheets as of April 2, 2022 and
October 2, 2021, respectively. During the 26 weeks ended April 2,
2022, the Company made payments related to the unforgiven portion
of PPP Loans in the aggregate amount of $976,000.
Deferred Financing Costs
Deferred financing costs incurred in the amount of $271,000 are
being amortized over the life of the agreements using the effective
interest rate method and included in interest expense. Amortization
expense of approximately $12,000 and $16,000 is included in
interest expense for the 13 weeks ended April 2, 2022 and
April 3, 2021, respectively. Amortization expense was $24,000
and $33,000 for the 26 weeks ended April 2, 2022 and
April 3, 2021, respectively.
9. COMMITMENTS AND
CONTINGENCIES
Leases
— The Company leases several restaurants, bar facilities, and
administrative headquarters through its subsidiaries under terms
expiring at various dates through 2046. 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 restaurant’s sales in excess of stipulated
amounts at such facility and in one instance based on profits. In
connection with one of our leases, the Company obtained and
delivered an irrevocable letter of credit in the amount of
approximately $542,000 as a security deposit under such
lease.
Legal
Proceedings
— In the ordinary course of 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.
On May 1, 2018, two former tipped service workers (the
“Plaintiffs”), individually and on behalf of all other similarly
situated personnel, filed a putative class action lawsuit (the
“Complaint”) against the Company and certain subsidiaries as well
as certain officers of the Company (the “Defendants”).
Plaintiffs alleged, on behalf of themselves and the putative class,
that the Company violated certain of the New York State Labor Laws
and related regulations. The Complaint sought unspecified
money damages, together with interest, liquidated damages and
attorney fees. In December 2020, the parties reached a
settlement agreement resolving all issues alleged in the Complaint,
which received preliminary approval by the New York State Supreme
Court, for approximately the amount which was previously accrued.
Plaintiffs have submitted an application to the New York State
Supreme Court seeking final approval of the
settlement.
10. STOCK OPTIONS
The Company has options outstanding under two stock option plans,
the 2010 Stock Option 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 10 years after the date
of grant.
On March 15, 2022, the shareholders of the Company approved the
2022 Stock Option Plan. Effective with this approval, the Company
terminated the 2016 Plan along with the 63,750 authorized but
unissued options under the 2016 Plan, but it did not affect any of
the options previously issued under the 2016 Plan. Under the 2022
Stock Option Plan, 500,000 options were authorized for future grant
and are exercisable at prices at least equal to the fair market
value of such stock on the dates the options were granted. The
options expire 10 years after the date of grant.
During the 26-week period ended April 2, 2022, no options to
purchase shares of common stock were issued by the
Company.
During the 26-week period ended April 3, 2021, options to
purchase 110,500 shares of common stock at an exercise
price of $10.65 per share were granted to employees and
directors of the Company (the "2021 Grant"). Such options are
exercisable as to 50% of the shares commencing on the
second anniversary of the date of grant and as to 50% on the
fourth anniversary of the date of grant. Such options had an
aggregate grant date fair value of $2.22 per share and
totaled approximately $246,000.
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 assumptions used for the 2021 Grant include a risk-free
interest rate of 0.86%, volatility of 37.1%, a dividend yield of
3.0% and an expected life of 10 years.
The Company also maintains a Section 162(m) Cash Bonus Plan. Under
the Company's 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) is not tax deductible.
A summary of stock option activity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
Shares |
|
Weighted
Average
Exercise
Price |
|
Weighted
Average
Contractual
Term |
|
Aggregate
Intrinsic Value |
|
Outstanding, beginning of period |
596,476 |
|
|
$19.21 |
|
6.3 years |
|
|
|
Options: |
|
|
|
|
|
|
|
|
Granted |
— |
|
|
|
|
|
|
|
|
Exercised |
(788) |
|
|
|
|
|
|
|
|
Canceled or expired |
— |
|
|
|
|
|
|
|
Outstanding and expected to vest,
end of period |
595,688 |
|
|
$19.21 |
|
5.8 years |
|
$ |
798,000 |
|
|
Exercisable, end of period |
246,188 |
|
|
$20.35 |
|
2.6 years |
|
$ |
134,000 |
|
|
Shares available for future grant |
500,000 |
|
|
|
|
|
|
|
Compensation cost charged to operations for the 13 weeks ended
April 2, 2022 and April 3, 2021 for share-based
compensation programs was approximately $74,000 and $73,000,
respectively, and for the 26 weeks ended April 2, 2022 and April 3,
2021 was approximately $148,000 and $133,000, respectively. The
compensation cost recognized is classified as a general and
administrative expense in the consolidated condensed statements of
operations.
As of April 2, 2022, there was approximately $590,000 of
unrecognized compensation cost related to unvested stock options,
which is expected to be recognized over a period of 2.5
years.
11. INCOME TAXES
We calculate our interim income tax provision in accordance with
ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for
Income Taxes. At the end of each interim period, we estimate the
annual effective tax rate and apply that rate to our ordinary year
to date earnings. In addition, the tax effects of unusual or
infrequently occurring items including changes in judgment about
valuation allowances and effects of changes in enacted tax laws are
recognized discretely in the interim period in which the change
occurs. The computation of the annual estimated effective tax rate
at each interim period requires certain estimates and significant
judgment including the expected operating (loss) income for the
year, permanent and temporary differences as a result of
differences between amounts measured and recognized in accordance
with tax laws and financial accounting standards, and the
likelihood of recovering deferred tax assets generated in the
current fiscal year. The accounting estimates used to compute
income tax expense may change as new events occur, additional
information is obtained, or the tax environment
changes.
On March 27, 2020, the CARES Act was enacted to provide economic
relief to those impacted by the COVID-19 pandemic. In addition to
the PPP loans, the CARES Act made various tax law changes including
among other things (i) modifications to the federal net operating
loss rules including permitting federal net operating losses
incurred in 2018, 2019, and 2020 tax years to be carried back to
the five preceding taxable years in order to generate a refund of
previously paid income taxes, (ii) enhanced recoverability of AMT
tax credit carryforwards, (iii) increased the limitation under
Internal Revenue Code ("IRC") Section 163(j) for 2019 and 2020 to
permit additional expensing of interest, and (iv) enacted a
technical correction so that qualified improvement property can be
immediately expensed under IRC Section 168(k).
On December 27, 2020, the Consolidated Appropriations Act of 2021
(“CAA”) was enacted and provided clarification on the tax
deductibility of expenses funded with PPP loans as fully deductible
for tax purposes and therefore, the forgiveness of any PPP loans is
not taxable. During the 13-week periods ended April 2, 2022 and
April 3, 2021, the Company recorded income for financial reporting
purposes related to the forgiveness of some of its PPP loans. The
income recorded for financial reporting purposes was considered an
unusual or infrequent event and the tax effect was recorded
discretely in the quarter ended April 3, 2021.
As a result of the CARES Act and the CAA, the Company carried back
taxable losses from fiscal year 2020 and is expected to carryback
taxable losses from fiscal 2021 to generate a refund of previously
paid income taxes. For the 26-week period ended April 3, 2021, the
Company recorded income tax benefits as the taxable losses from
fiscal 2020 and the projected taxable losses from fiscal 2021 are
being carried back to tax years in which the Company was subject to
a higher federal corporate income tax rate. The adjustment related
to the fiscal 2020 carryback was recorded as a discrete item during
the 13-week period ended January 2, 2021 and the carryback of the
projected taxable losses from fiscal 2021 was recorded as a
component of the estimated annual effective tax rate for the
26-week period ended April 3, 2021.
The provision for income taxes for the 26-week period ended April
2, 2022 was $385,000. The effective tax rate for the 26-week period
ended April 2, 2022 of 9.7% differed from the statutory rate of 21%
primarily as a result of the tax benefits related to the generation
of FICA tax credits, operating income attributable to
non-controlling interests that is not taxable to the Company and
the discrete tax benefit attributable to the income related to the
PPP loan forgiveness which is not taxable for tax
purposes.
The income tax benefit for the 26-week period ended April 3, 2021
was $(4,839,000). The effective tax rate for the 26-week period
ended April 3, 2021 of 376.6% differed from the statutory rate of
21% primarily related to the discrete tax benefit attributable to
the income related to the PPP loan forgiveness which is not taxable
for tax purposes.
The Company’s overall effective tax rate in the future will be
affected by factors such as changes in tax law, the utilization of
state and local net operating loss carryforwards, the generation of
FICA tax credits, additional forgiveness of PPP Loans 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. The final annual
tax rate cannot be determined until the end of the fiscal year;
therefore, the actual tax rate could differ from current
estimates.
12. 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 shares used in calculating earnings per basic
and diluted share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
|
April 2,
2022 |
|
April 3,
2021 |
|
April 2,
2022 |
|
April 3,
2021 |
|
Basic |
3,552 |
|
|
3,511 |
|
|
3,552 |
|
|
3,507 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
52 |
|
|
116 |
|
|
48 |
|
|
72 |
|
|
Diluted |
3,604 |
|
|
3,627 |
|
|
3,600 |
|
|
3,579 |
|
For the 13- and 26-week periods ended April 2, 2022, the
dilutive effect of 433,000 options was not included in diluted
earnings per share as their impact would be
anti-dilutive.
For the 13- and 26-week periods ended April 3, 2021, the
dilutive effect of 482,500 options was not included in diluted
earnings per share as their impact would have been
anti-dilutive.
13. SUBSEQUENT EVENTS
On April 8, 2022, the Company extended its lease for
Gallagher's Steakhouse
at the New York-New York Hotel and Casino in Las Vegas, NV through
December 31, 2032. In connection with the extension, the Company
has agreed to spend a minimum of $1,500,000 to materially refresh
the premises by September 30, 2022, subject to various extensions
as set out in the agreement.
On May 11, 2022, the Board of Directors (the "Board") of the
Company declared a quarterly cash dividend of $0.125 per share
which will be paid on June 13, 2022 to the stockholders of record
of each share of the Company's common stock at the close of
business on May 31, 2022. Future decisions to pay or to increase or
decrease dividends are at the discretion of the Board and will
depend upon operating performance and other factors.
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
This section and other parts of this Quarterly Report on Form 10-Q
("Form 10-Q") contain forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995
("PSLRA"), which are subject to known and unknown risks,
uncertainties and other important factors that may cause actual
results to be materially different from the statements made herein.
All statements other than statements of historical fact are
forward-looking statements. Forward-looking statements discuss our
current expectations and projections relating to our financial
position, results of operations, plans, objectives, future
performance and business. You can identify forward-looking
statements by the fact that they do not relate strictly to any
historical or current facts. These statements may include words
such as "aim," "anticipate," "believe," "estimate," "expect,"
"forecast," "future," "intend," "outlook," "potential," "project,"
"projection," "plan," "seek," "may," "could," "would," "will,"
"should," "can," "can have," "likely," the negatives thereof and
other similar expressions. All forward-looking statements are
expressly qualified in their entirety by these cautionary
statements.
The following discussion and analysis should be read in conjunction
with our Annual Report on Form 10-K for the year ended October 2,
2021 and the consolidated condensed financial statements and notes
thereto included in Part I, Item 1 of this Form 10-Q. All
information presented herein is based on our fiscal calendar.
Unless otherwise stated, references to particular years, quarters,
months or periods refer to our fiscal years and the associated
quarters, months and periods of those fiscal years.
COVID-19 Pandemic
We are subject to continued risks and uncertainties as a result of
the outbreak of, and local, state and federal governmental
responses to, the COVID-19 pandemic which was declared a National
Public Health Emergency in March 2020. We experienced significant
disruptions to our business as suggested and mandated social
distancing and shelter-in-place orders led to the temporary closure
of all of our restaurants. While restrictions on the type of
permitted operating model and occupancy capacity may continue to
change, all of our restaurants are currently operating with no
dining restrictions. We cannot predict how long the COVID-19
pandemic will last, whether vaccines will be effective at
eliminating or slowing the spread of the virus or variants, whether
it will reoccur or whether variants will spike, what additional
restrictions may be enacted, to what extent we can maintain sales
volumes during or following any resumption of mandated social
distancing protocols or vaccination or mask mandates and what
long-lasting effects the COVID-19 pandemic may have on the
restaurant industry as a whole. The ongoing effects of the COVID-19
pandemic, including, but not limited to, labor-related impacts,
supply chain disruption and consumer behavior, will determine the
continued significance of the impact of the COVID-19 pandemic to
our operating results and financial position.
Overview
As of April 2, 2022, the Company owned and operated 17
restaurants and bars, 17 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.
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 periods
ended April 2, 2022 and April 3, 2021 each included 13
and 26 weeks.
Seasonality
The Company has substantial fixed costs that do not decline
proportionally with sales. Although our business is highly
seasonal, our broader geographical reach as a result of recent
acquisitions mitigates some of the risk. For instance, the second
quarter of our fiscal year, consisting of the non-holiday portion
of the cold weather season in New York and Washington, D.C.
(January, February and March), is the poorest performing quarter;
however, in recent years this has been partially offset by our
locations in Florida as they experience increased results in the
winter months. We generally achieve our best results during the
warm weather, attributable to our extensive outdoor dining
availability, particularly at Bryant Park in New York and Sequoia
in Washington, D.C. (our largest restaurants) and our outdoor
cafes. However, even during summer months these facilities can be
adversely affected by unusually cool or rainy weather conditions.
Our facilities in Las Vegas are indoor and generally operate on a
more consistent basis throughout the year.
Results of Operations
The Company’s operating income (as set out below) for the 13 and 26
weeks ended April 2, 2022, as compared to the same periods of
April 3, 2021 increased primarily as a result of all of our
restaurants operating with no dining restrictions in the current
period in comparison to the prior period as a result of government
mandates in connection with the COVID-19 pandemic combined with a
modest recovery in our event business in Washington, D.C. and New
York City in the current period.
The following table summarizes the significant components of the
Company’s operating results for the 13- and 26-week periods ended
April 2, 2022 and April 3, 2021:
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
Variance |
|
26 Weeks Ended |
|
Variance |
|
April 2,
2022 |
|
April 3,
2021 |
|
$ |
|
% |
|
April 2,
2022 |
|
April 3,
2021 |
|
$ |
|
% |
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales |
$ |
38,822 |
|
|
$ |
25,181 |
|
|
$ |
13,641 |
|
|
54.2 |
% |
|
$ |
82,058 |
|
|
$ |
45,070 |
|
|
$ |
36,988 |
|
|
82.1 |
% |
|
Other revenue |
764 |
|
|
586 |
|
|
178 |
|
|
30.4 |
% |
|
1,513 |
|
|
996 |
|
|
517 |
|
|
51.9 |
% |
|
Total revenues |
39,586 |
|
|
25,767 |
|
|
13,819 |
|
|
53.6 |
% |
|
83,571 |
|
|
46,066 |
|
|
37,505 |
|
|
81.4 |
% |
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage cost of sales |
12,255 |
|
|
7,764 |
|
|
4,491 |
|
|
57.8 |
% |
|
24,796 |
|
|
13,705 |
|
|
11,091 |
|
|
80.9 |
% |
|
Payroll expenses |
13,482 |
|
|
8,391 |
|
|
5,091 |
|
|
60.7 |
% |
|
27,722 |
|
|
17,041 |
|
|
10,681 |
|
|
62.7 |
% |
|
Occupancy expenses |
4,616 |
|
|
3,523 |
|
|
1,093 |
|
|
31.0 |
% |
|
9,848 |
|
|
6,997 |
|
|
2,851 |
|
|
40.7 |
% |
|
Other operating costs and expenses |
4,840 |
|
|
3,529 |
|
|
1,311 |
|
|
37.1 |
% |
|
9,978 |
|
|
6,339 |
|
|
3,639 |
|
|
57.4 |
% |
|
General and administrative expenses |
3,018 |
|
|
3,036 |
|
|
(18) |
|
|
-0.6 |
% |
|
5,982 |
|
|
4,824 |
|
|
1,158 |
|
|
24.0 |
% |
|
Depreciation and amortization |
1,148 |
|
|
1,021 |
|
|
127 |
|
|
12.4 |
% |
|
2,227 |
|
|
1,963 |
|
|
264 |
|
|
13.4 |
% |
|
Total costs and expenses |
39,359 |
|
|
27,264 |
|
|
12,095 |
|
|
44.4 |
% |
|
80,553 |
|
|
50,869 |
|
|
29,684 |
|
|
58.4 |
% |
|
OPERATING INCOME (LOSS) |
$ |
227 |
|
|
$ |
(1,497) |
|
|
$ |
1,724 |
|
|
115.2 |
% |
|
$ |
3,018 |
|
|
$ |
(4,803) |
|
|
$ |
7,821 |
|
|
162.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
During the 13-week period ended April 2, 2022, revenues
increased 53.6% as compared to revenues in the 13-week period ended
April 3, 2021. This increase resulted primarily from all of
our restaurants operating with no dining restrictions in the
current period in comparison to the prior period as a result of
government mandates in connection with the COVID-19
pandemic.
During the 26-week period ended April 2, 2022, revenues
increased 81.4% as compared to revenues in the 26-week period ended
April 3, 2021. This increase also resulted primarily from all
of our restaurants operating with no dining restrictions in the
current period in comparison to the prior period as a result of
government mandates in connection with the COVID-19
pandemic.
Food and Beverage Same-Store Sales
On a Company-wide basis, same-store sales increased 54.0% during
the 13 weeks ended April 2, 2022 as compared to the same period of
last year as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
Variance |
|
|
April 2,
2022 |
|
April 3,
2021 |
|
$ |
|
% |
|
(in thousands) |
|
|
|
|
|
Las Vegas |
$ |
12,719 |
|
|
$ |
6,737 |
|
|
$ |
5,982 |
|
|
88.8 |
% |
|
New York |
3,387 |
|
|
1,119 |
|
|
2,268 |
|
|
202.7 |
% |
|
Washington, D.C. |
1,206 |
|
|
755 |
|
|
451 |
|
|
59.7 |
% |
|
Atlantic City, NJ |
907 |
|
|
257 |
|
|
650 |
|
|
252.9 |
% |
|
Connecticut |
76 |
|
|
103 |
|
|
(27) |
|
|
-26.2 |
% |
|
Alabama |
3,336 |
|
|
2,674 |
|
|
662 |
|
|
24.8 |
% |
|
Florida |
17,366 |
|
|
13,674 |
|
|
3,692 |
|
|
27.0 |
% |
|
Same-store sales |
38,997 |
|
|
25,319 |
|
|
$ |
13,678 |
|
|
54.0 |
% |
|
Other |
(175) |
|
|
(138) |
|
|
|
|
|
|
Food and beverage sales |
$ |
38,822 |
|
|
$ |
25,181 |
|
|
|
|
|
On a Company-wide basis, same-store sales increased 79.6% during
the 26 weeks ended April 2, 2022 as compared to the same period of
last year as follows:
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
Variance |
|
|
April 2,
2022 |
|
April 3,
2021 |
|
$ |
|
% |
|
(in thousands) |
|
|
|
|
|
Las Vegas |
$ |
26,721 |
|
|
$ |
12,556 |
|
|
$ |
14,165 |
|
|
112.8 |
% |
|
New York |
11,912 |
|
|
3,209 |
|
|
8,703 |
|
|
271.2 |
% |
|
Washington, D.C. |
3,534 |
|
|
1,658 |
|
|
1,876 |
|
|
113.1 |
% |
|
Atlantic City, NJ |
1,568 |
|
|
428 |
|
|
1,140 |
|
|
266.4 |
% |
|
Connecticut |
143 |
|
|
191 |
|
|
(48) |
|
|
-25.1 |
% |
|
Alabama |
6,415 |
|
|
4,690 |
|
|
1,725 |
|
|
36.8 |
% |
|
Florida |
30,201 |
|
|
22,083 |
|
|
8,118 |
|
|
36.8 |
% |
|
Same-store sales |
80,494 |
|
|
44,815 |
|
|
$ |
35,679 |
|
|
79.6 |
% |
|
Other |
1,564 |
|
|
255 |
|
|
|
|
|
|
Food and beverage sales |
$ |
82,058 |
|
|
$ |
45,070 |
|
|
|
|
|
The increases in company-wide same-store sales were driven
primarily by increased customer traffic as a result of the impact
of the COVID-19 pandemic on the prior period combined with targeted
increases in menu pricing and a modest recovery in our event
business in Washington, D.C. and New York City in the current
period. Same-store sales in Connecticut decreased 26.2% due to
disruption to our business as a result of its relocation within the
Foxwoods Resort and Casino where our property is
located.
Other food and beverage sales consist of sales related to new
restaurants opened or acquired during the applicable period, sales
related to properties that were closed (Clyde
Frazier's Wine and Dine, Gallagher's Steakhouse and Gallagher's
Burger Bar -
see Liquidity and Capital Resources - Recent Restaurant
Dispositions) and other adjustments and fees.
Costs and Expenses
Costs and expenses for the 13 and 26 weeks ended April 2, 2022
and April 3, 2021 were as follows (in thousands):
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
April 2,
2022 |
%
to Total
Revenues |
13 Weeks Ended
April 3,
2021 |
%
to Total
Revenues |
Increase
(Decrease) |
|
26 Weeks
Ended
April 2,
2022 |
%
to Total
Revenues |
26 Weeks
Ended
April 3,
2021 |
%
to Total
Revenues |
Increase
(Decrease) |
|
$ |
|
% |
|
$ |
|
% |
|
Food and beverage cost of sales |
$ |
12,255 |
|
31.0 |
% |
$ |
7,764 |
|
30.1 |
% |
4,491 |
|
|
57.8 |
% |
|
$ |
24,796 |
|
29.7 |
% |
$ |
13,705 |
|
29.8 |
% |
11,091 |
|
|
80.9 |
% |
|
Payroll expenses |
13,482 |
|
34.1 |
% |
8,391 |
|
32.6 |
% |
5,091 |
|
|
60.7 |
% |
|
27,722 |
|
33.2 |
% |
17,041 |
|
37.0 |
% |
10,681 |
|
|
62.7 |
% |
|
Occupancy expenses |
4,616 |
|
11.7 |
% |
3,523 |
|
13.7 |
% |
1,093 |
|
|
31.0 |
% |
|
9,848 |
|
11.8 |
% |
6,997 |
|
15.2 |
% |
2,851 |
|
|
40.7 |
% |
|
Other operating costs and expenses |
4,840 |
|
12.2 |
% |
3,529 |
|
13.7 |
% |
1,311 |
|
|
37.1 |
% |
|
9,978 |
|
11.9 |
% |
6,339 |
|
13.8 |
% |
3,639 |
|
|
57.4 |
% |
|
General and administrative expenses |
3,018 |
|
7.6 |
% |
3,036 |
|
11.8 |
% |
(18) |
|
|
-0.6 |
% |
|
5,982 |
|
7.2 |
% |
4,824 |
|
10.5 |
% |
1,158 |
|
|
24.0 |
% |
|
Depreciation and amortization |
1,148 |
|
2.9 |
% |
1,021 |
|
4.0 |
% |
127 |
|
|
12.4 |
% |
|
2,227 |
|
2.7 |
% |
1,963 |
|
4.3 |
% |
264 |
|
|
13.4 |
% |
|
Total costs and expenses |
$ |
39,359 |
|
|
$ |
27,264 |
|
|
$ |
12,095 |
|
|
|
|
$ |
80,553 |
|
|
$ |
50,869 |
|
|
$ |
29,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in food and beverage costs as a percentage of total
revenues for the 13 and 26 weeks ended April 2, 2022 as
compared with the same periods of last year reflect increased
volumes, targeted increases in menu pricing, changes in menu mix
and a modest recovery in our event business in Washington, D.C. and
New York City in the current period, partially offset by increases
in costs of seafood and other high-volume items.
Payroll expenses as a percentage of total revenues for the 13 weeks
ended April 2, 2022 increased as compared with the same period
of last year primarily as a result of increased labor costs in
connection with ongoing COVID-related labor challenges partially
offset by increased volumes, targeted increases in menu pricing and
changes in menu mix. Payroll expenses as a percentage of total
revenues for the 26 weeks ended April 2, 2022 decreased as compared
with the same period of last year primarily as a result of
retaining key restaurant management personnel with lower
corresponding revenues for several months at the beginning of prior
period as a result of the government mandated closures and/or
capacity restrictions at several of our restaurants in connection
with the COVID-19 pandemic combined with increased labor costs in
connection with ongoing COVID-related labor challenges partially
offset by increased volumes, targeted increases in menu pricing and
changes in menu mix.
Occupancy expenses as a percentage of total revenues for the 13 and
26 weeks ended April 2, 2022 decreased as compared with the
same period of last year primarily as a result of the fixed nature
of many of these expenses and lower sales in the prior period as a
result of the COVID-19 pandemic.
Other operating costs and expenses as a percentage of total
revenues for the 13 and 26 weeks ended April 2, 2022 as
compared to the same period of last year decreased primarily as a
result of the fixed nature of some of these expenses and lower
sales in the prior period as a result of the COVID-19 pandemic,
decreased maintenance at properties where we are experiencing lower
traffic and increased professional fees at the restaurant-level in
the prior periods.
General and administrative expenses (which relate solely to the
corporate office in New York City) for the 13 weeks ended
April 2, 2022 decreased slightly as compared with the same
period of last year primarily as a result of headcount reductions
of corporate personnel. General and administrative expenses for the
26 weeks ended April 2, 2022 increased as compared with the
same period of last year primarily as a result of headcount and
salary reductions of corporate personnel in the prior period as a
result of the impacts on our business from the COVID-19
pandemic.
Depreciation and amortization expense for the 13 and 26 weeks ended
April 2, 2022 increased as compared to the same period of last
year primarily as a result of assets placed in service in the
current period.
Income Taxes
We calculate our interim income tax provision in accordance with
ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for
Income Taxes. At the end of each interim period, we estimate the
annual effective tax rate and apply that rate to our ordinary year
to date earnings. In addition, the tax effects of unusual or
infrequently occurring items including changes in judgment about
valuation allowances and effects of changes in enacted tax laws are
recognized discretely in the interim period in which the change
occurs. The computation of the annual estimated effective tax rate
at each interim period requires certain estimates and significant
judgment including the expected operating (loss) income for the
year, permanent and temporary differences as a result of
differences between amounts measured and recognized in accordance
with tax laws and financial accounting standards, and the
likelihood of recovering deferred tax assets generated in the
current fiscal year. The accounting estimates used to compute
income tax expense may change as new events occur, additional
information is obtained, or the tax environment
changes.
The Company’s overall effective tax rate in the future will be
affected by factors such as changes in tax law, the utilization of
state and local net operating loss carryforwards, the generation of
FICA tax credits, additional forgiveness of PPP Loans 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. The final annual
tax rate cannot be determined until the end of the fiscal year;
therefore, the actual tax rate could differ from current
estimates.
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. Consistent with many other
restaurant operators, we typically use operating lease arrangements
for our restaurants. In recent years we have been able to acquire
the underlying real estate at several locations along with the
restaurant operation. We believe that our operating lease
arrangements provide appropriate leverage of our capital structure
in a financially efficient manner. As of April 2, 2022, we had
a cash and cash equivalents balance of $18,542,000.
Due to the fluidity of the COVID-19 pandemic, management cannot
determine the ultimate impact that it will have on the Company’s
consolidated financial condition, liquidity, future results of
operations, suppliers, industry, and workforce and therefore any
prediction as to the ultimate material adverse impact on the
Company’s consolidated financial condition, liquidity, and future
results of operations is uncertain. The disruption in operations
has led the Company to consider the impact of the COVID-19 pandemic
on its liquidity, debt covenant compliance, and recoverability of
long-lived and ROU assets, goodwill and intangible assets, among
others. If these disruptions were to re-occur, they could have a
material negative impact on our consolidated financial condition,
future results of operations and liquidity. The extent of such
negative impact will be determined, in part, by the longevity and
severity of the pandemic.
Cash Flows for 26 Weeks Ended April 2, 2022 and April 3,
2021
Net cash provided by operating activities for the 26 weeks ended
April 2, 2022 increased to $4,963,000 as compared to
$(1,644,000) used in operations in the same period of last year.
This increase was attributable to an increase in operating income
as a result of the continued recovery from the COVID-19 pandemic
and changes in net working capital primarily related to accounts
receivable, inventory and accounts payable and accrued
expenses.
Net cash used in investing activities for the 26 weeks ended
April 2, 2022 and April 3, 2021 was $(1,090,000) and
$(2,926,000), respectively, and resulted primarily from purchases
of fixed assets at existing restaurants and, in the prior period,
the cash portion of the purchase price of the
Blue Moon Fish Company
acquisition.
Net cash used in financing activities for the 26 weeks ended
April 2, 2022 of $(4,502,000) resulted primarily from
principal payments on notes payable and the payment of
distributions to non-controlling interests. Net cash used in
financing activities for the 26 weeks ended April 3, 2021 of
$(918,000) resulted primarily from principal payments on notes
payable partially offset by proceeds from the exercise of stock
options.
Recent Restaurant Expansions and Other Developments
On December 1, 2020, the Company, through a newly formed,
wholly-owned subsidiary, acquired the assets of Bear Ice, Inc. and
File Gumbo Inc., which collectively operated a restaurant and bar
named
Blue Moon Fish Company
located in Lauderdale-by-the-Sea, FL. The total purchase price of
$2,820,000 was paid with cash in the amount of $1,820,000 and a
four-year note held by the sellers in the amount of $1,000,000
payable monthly with 5% interest. Concurrent with the acquisition,
the Company assumed the related lease which expires in 2026 and has
four five-year extension options. Rent payments under the lease are
approximately $360,000 per year and increase by approximately 15%
as each option is exercised.
On January 26, 2021, the Company exercised its
right-of-first-refusal to acquire the land, building and parking
lot associated with
JB’s on the Beach
and immediately contributed such rights and interest to an
unrelated entity ("Sandcastle 1, LLC") that purchased the
properties on March 22, 2021. In exchange, the Company received a
5% interest in Sandcastle 1, LLC, which plans future development of
the sites. In addition, all rights and privileges under the current
lease were assigned to Sandcastle 1, LLC, as landlord and the lease
terms remain unchanged.
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.
Recent Restaurant Dispositions
On November 13, 2020, the Company was advised by the landlord that
it would have to vacate
Gallagher’s Steakhouse
and
Gallagher’s Burger Bar
at the Resorts Casino Hotel located in Atlantic City, NJ which were
on a month-to-month, no rent lease. The closure of these properties
occurred on January 2, 2021 and did not result in a material charge
to the Company’s operations.
As of January 2, 2021, the Company determined that, given the
then-current situation regarding the COVID-19 pandemic, it will not
reopen
Thunder Grill
in Washington, D.C. which has been closed since March 20, 2020.
This closure did not result in a material charge to the Company’s
operations.
On September 1, 2021, the Company advised the landlord of
Clyde Frazier's Wine and Dine
that we would be closing the property permanently and terminated
the lease. In connection with termination, the Company recorded a
gain of $810,000 during the year ended October 2, 2021 consisting
of: (i) rent and other costs incurred in accordance with the
termination provisions of the lease in the amount of $318,000, (ii)
impairment of long-lived assets in the amount of $69,000 and (iii)
the write-off of our security deposit in the amount of $121,000
offset by the write-off of ROU assets and related lease liabilities
in the net amount of $1,318,000.
Included in the consolidated condensed statement of operations for
the 13 weeks ended January 2, 2021 are revenues and net operating
losses of approximately $172,000 and $(709,000) related to the
above properties.
Notes Payable – Bank
On June 1, 2018, the Company refinanced (the "Refinancing") its
then existing indebtedness with its current lender, Bank Hapoalim
B.M. (“BHBM”), by entering into an amended and restated credit
agreement (the “Revolving Facility”), which was to mature on May
19, 2022 (as extended). The Revolving Facility provides for total
availability of the lesser of (i) $10,000,000 and (ii) $35,000,000
less the then aggregate amount of all indebtedness and obligations
to BHBM. On July 26, 2021, all outstanding borrowings under the
Revolving Facility, in the amount of $9,666,000, were converted to
a promissory note with quarterly principal payments of $500,000
commencing on September 1, 2021, with a balloon payment of
$2,166,000 on June 1, 2025. Such note bears interest at LIBOR plus
3.5% per annum. We expect that the LIBOR rate will be discontinued
at some point during 2022 and to work with BHBM to identify a
suitable replacement rate and amend our debt agreements to reflect
this new reference rate accordingly. We do not expect the
discontinuation of LIBOR as a reference rate in our debt agreements
to have a material adverse effect on our financial position or
materially affect our interest expense.
Borrowings under the Revolving Facility, which include the
promissory notes as discussed in Note 8 of the consolidated
condensed financial statements, are secured by all tangible and
intangible personal property (including accounts receivable,
inventory, equipment, general intangibles, documents, chattel
paper, instruments, letter-of-credit rights, investment
property,
intellectual property and deposit accounts) and fixtures of the
Company. The Revolving Facility also requires, among other things,
that the Company meet minimum quarterly tangible net worth amounts,
maintain a minimum fixed charge coverage ratio and meet minimum
annual net income amounts. The Revolving Facility contains
customary representations, warranties and affirmative covenants as
well as 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.
Paycheck Protection Program Loans
During the year ended October 3, 2020, subsidiaries and
consolidated VIEs (the “Borrowers”) of the Company received loan
proceeds from several banks (the “Lenders”) in the aggregate amount
of $14,995,000 (the “PPP Loans”) under the Paycheck Protection
Program (the “PPP”) of the CARES Act, which was enacted March 27,
2020. In addition, during the 13 weeks ended April 3, 2021, one of
our consolidated VIEs received a second draw PPP Loan in the amount
of $111,000. The PPP Loans are evidenced by individual promissory
notes of each of the Borrowers (together, the “Notes”) in favor of
the Lender, which Notes bear interest at the rate of 1.00% per
annum. Funds from the PPP Loans may be used only for payroll and
related costs, costs used to continue group health care benefits,
mortgage payments, rent, utilities, and interest on other debt
obligations that were incurred by a Borrower prior to February 15,
2020 (the “Qualifying Expenses”). Under the terms of the PPP Loans,
some or all of the amounts thereunder, including accrued interest,
may be forgiven if they are used for Qualifying Expenses as
described in and in compliance with the CARES Act. Each Note may be
prepaid by the respective Borrower at any time prior to maturity
with no prepayment penalties. No payments of principal or interest
are due under the Notes until the date on which the amount of loan
forgiveness (if any) under the CARES Act for each respective Note
is remitted to the Lender and a forgiveness decision is received by
the Borrower. Forgiveness applications can be submitted up to 10
months after the end of the related notes covered period (which is
defined as 24 weeks after the date of the loan) (the “Deferral
Period”) and the ultimate forgiveness decisions can be made by the
Lenders up to 60 days after submitting the applications and
possibly longer if forgiveness is fully or partially denied and the
Borrower appeals the decision. While the Company and each Borrower
believe that PPP Loan proceeds were used exclusively for Qualifying
Expenses, it is unclear and uncertain whether the conditions for
forgiveness of the remaining PPP Loans outstanding at April 2,
2022 will be met under the current guidelines of the CARES Act.
Therefore, we cannot make any assurances that the Company, or any
of the Borrowers, will be eligible for forgiveness of the remaining
PPP Loans, in whole or in part.
During the 13 weeks ended April 2, 2022 and April 3, 2021,
$1,122,000 and $4,124,000 of PPP Loans, respectively (including
$20,000 and $27,000 of accrued interest) were forgiven. To the
extent that any of the remaining PPP Loans are not forgiven,
beginning one month following expiration of the Deferral Period,
and continuing monthly until 24 months from the date of each
applicable Note (the “Maturity Date”), each respective Borrower is
obligated to make monthly payments of principal and interest to the
Lender with respect to any unforgiven portion of the Notes, in such
equal amounts required to fully amortize the principal amount
outstanding on such Notes as of the last day of the applicable
Deferral Period by the applicable Maturity Date. Accordingly, based
on the above, we have classified the PPP Loan amounts expected to
be forgiven as long-term in accordance with SEC interpretative
guidance and the remaining amounts expected to be repaid in the
next 12 months of $892,000 and $2,032,000 as short-term in the
consolidated condensed balance sheets as of April 2, 2022 and
October 2, 2021, respectively. During the 26 weeks ended April 2,
2022, the Company made payments related to the unforgiven portion
of PPP Loans in the aggregate amount of $976,000.
Recent Events
On April 8, 2022, the Company extended its lease for
Gallagher's Steakhouse
at the New York-New York Hotel and Casino in Las Vegas, NV through
December 31, 2032. In connection with the extension, the Company
has agreed to spend a minimum of $1,500,000 to materially refresh
the premises by September 30, 2022, subject to various extensions
as set out in the agreement.
On May 11, 2022, the Board of Directors (the "Board") of the
Company declared a quarterly cash dividend of $0.125 per share
which will be paid on June 13, 2022 to the stockholders of record
of each share of the Company's common stock at the close of
business on May 31, 2022. Future decisions to pay or to increase or
decrease dividends are at the discretion of the Board and will
depend upon operating performance and other factors.
Critical Accounting Policies
The preparation of financial statements requires the application of
certain accounting policies, which may require the Company to make
estimates and assumptions of future events. In the process of
preparing its consolidated condensed financial statements, the
Company estimates the appropriate carrying value of certain assets
and liabilities, which are not readily apparent from other sources.
The primary estimates underlying the Company’s consolidated
condensed financial statements include projected cash flows,
allowances for potential bad debts on accounts and notes
receivable, assumptions regarding discount rates related to lease
accounting, the useful lives and recoverability of its assets, such
as property and intangibles, fair values of financial
instruments,
the realizable value of its tax assets and other matters.
Management bases its estimates on certain assumptions, which it
believes are reasonable in the circumstances, and actual results
could differ from those estimates. Although management does not
believe that any change in those assumptions in the near term would
have a material effect on the Company’s consolidated condensed
financial position or the results of operations, differences in
actual results could be material to the consolidated condensed
financial statements.
The Company’s critical accounting policies are described in the
Company’s Form 10-K for the year ended October 2, 2021. There have
been no significant changes to such policies during fiscal 2022
other than those disclosed in Note 1 to the consolidated condensed
financial statements.
Recently Adopted and Issued Accounting Standards
See Note 1 to the consolidated condensed financial statements for a
description of recent accounting pronouncements, including those
adopted in fiscal 2022 and the expected dates of adoption of new
accounting standards and the anticipated impact on the consolidated
condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Not Applicable
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management,
including our principal executive officer and principal financial
officer, we evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of the end of the
period covered by this quarterly report as such term is defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Based on
this evaluation, our management, including our principal executive
officer and principal financial officer, concluded that our
disclosure controls and procedures were effective as of
April 2, 2022 to ensure that all material information required
to be disclosed by us in reports that we file or submit under the
Exchange Act is accumulated and communicated to them as appropriate
to allow timely decisions regarding required disclosure and that
all such information is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and
forms.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) that occurred during the second quarter of fiscal
2022 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the internal control system are met. Because of the
inherent limitations of any internal control system, no evaluation
of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Except as otherwise provided below, the Company is not subject to
pending legal proceedings, other than ordinary claims incidental to
its business, which the Company does not believe will materially
impact results of operations.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB* XBRL Taxonomy Extension Label Linkbase
Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase
Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101).
__________________________
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data
Files on Exhibit 101 and Exhibit 104 hereto are deemed not filed or
part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, as amended, are
deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, and otherwise are not subject to
liability under those sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
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Date: |
May 17, 2022 |
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ARK RESTAURANTS CORP. |
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By: |
/s/ Michael Weinstein |
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Michael Weinstein |
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Chairman & Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Anthony J. Sirica |
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Anthony J. Sirica |
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President and Chief Financial Officer |
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(Authorized Signatory and Principal |
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Financial and Accounting Officer) |
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