Ark Restaurants Corp 10-Q for FY2023 Q3
Ark Restaurants Corp (ARKR)
10-Q
2023-08-15
For: 2023-07-01
View Original
Added on
April 11, 2026
About this 10-Q
Ark Restaurants Corp filed this 10-Q on August 15, 2023, covering the quarter ended July 1, 2023 (FY2023 Q3).
Headline figures
Quarter ended July 1, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $51.05M
- down 4.1% from $53.22M a year earlier
- Net income
- $3.2M
- down 39.2% from net income of $5.26M a year earlier
- Diluted EPS
- $0.88
- down 39.7% from $1.46 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2023
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-09453
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | ||||||||||
| (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:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
☒ | Smaller Reporting Company | |||||||||||||
| Emerging Growth Company | ||||||||||||||
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 ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ý
As of August 11, 2023, there were 3,604,157 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 adverse impact of current and future economic conditions, including inflation, 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, if at all;
•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.
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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.
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Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands, Except Per Share Amounts) | ||
| July 1, 2023 | October 1, 2022 | ||||||||||
| (unaudited) | (Note 1) | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
Cash and cash equivalents (includes $ | $ | $ | |||||||||
| Certificate of deposit, plus accrued interest | |||||||||||
Accounts receivable (includes $ | |||||||||||
| Employee receivables | |||||||||||
Inventories (includes $ | |||||||||||
Prepaid and refundable income taxes (includes $ | |||||||||||
Prepaid expenses and other current assets (includes $ | |||||||||||
| Total current assets | |||||||||||
FIXED ASSETS - Net (includes $ | |||||||||||
OPERATING LEASE RIGHT-OF-USE ASSETS - Net (includes $ | |||||||||||
| INTANGIBLE ASSETS - Net | |||||||||||
| GOODWILL | |||||||||||
| TRADEMARKS | |||||||||||
| DEFERRED INCOME TAXES | |||||||||||
| INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK | |||||||||||
OTHER ASSETS (includes $ | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
Accounts payable - trade (includes $ related to VIEs) | $ | $ | |||||||||
Accrued expenses and other current liabilities (includes $ | |||||||||||
Current portion of operating lease liabilities (includes $ October 1, 2022 related to VIEs) | |||||||||||
| Current portion of notes payable | |||||||||||
| Total current liabilities | |||||||||||
OPERATING LEASE LIABILITIES, LESS CURRENT PORTION (includes $ | |||||||||||
| NOTES PAYABLE, LESS CURRENT PORTION | |||||||||||
| TOTAL LIABILITIES | |||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||
| EQUITY: | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total Ark Restaurants Corp. shareholders’ equity | |||||||||||
| NON-CONTROLLING INTERESTS | |||||||||||
| TOTAL EQUITY | |||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | |||||||||
See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per Share Amounts) | ||
| 13 Weeks Ended | 39 Weeks Ended | ||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | ||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||
| Food and beverage sales | $ | $ | $ | $ | |||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| Food and beverage cost of sales | |||||||||||||||||||||||
| Payroll expenses | |||||||||||||||||||||||
| Occupancy expenses | |||||||||||||||||||||||
| Other operating costs and expenses | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||
| OTHER (INCOME) EXPENSE: | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||
| Gain on forgiveness of PPP Loans | ( | ( | ( | ||||||||||||||||||||
| Total other (income) expense, net | ( | ( | |||||||||||||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| CONSOLIDATED NET INCOME | |||||||||||||||||||||||
| Net income attributable to non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO ARK RESTAURANTS CORP. | $ | $ | $ | $ | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO ARK RESTAURANTS CORP. PER COMMON SHARE: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY (unaudited) (In Thousands, Except Per Share Amounts) | ||
| For the 13 weeks ended July 1, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Total Ark Restaurants Corp. Shareholders’ Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance - April 1, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Dividends paid - $ | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - July 1, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| For the 39 weeks ended July 1, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Total Ark Restaurants Corp. Shareholders’ Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| BALANCE - October 1, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||||||||||||||
| Elimination of non-controlling interest upon dissolution of subsidiary | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Dividends paid - $ | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||
| BALANCE - July 1, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY (unaudited) (In Thousands, Except Per Share Amounts) | ||
| For the 13 weeks ended July 2, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Total Ark Restaurants Corp. Shareholders’ Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance - April 2, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Dividends paid - $ | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - July 2, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| For the 39 weeks ended July 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 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
Dividends paid - $ | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| BALANCE - July 2, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) | ||
| 39 Weeks Ended | |||||||||||
| July 1, 2023 | July 2, 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Consolidated net income | $ | $ | |||||||||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |||||||||||
| Stock-based compensation | |||||||||||
| Gain on forgiveness of PPP Loans | ( | ( | |||||||||
| Deferred income taxes | ( | ||||||||||
| Accrued interest on note receivable from NMR | ( | ( | |||||||||
| Depreciation and amortization | |||||||||||
| Amortization of operating lease assets | |||||||||||
| Amortization of deferred financing costs | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid, refundable and accrued income taxes | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Other assets | ( | ||||||||||
| Accounts payable - trade | ( | ||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of fixed assets | ( | ( | |||||||||
| Loans and advances made to employees | ( | ( | |||||||||
| Payments received on employee receivables | |||||||||||
| Proceeds from maturity of certificate of deposit | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Principal payments on notes payable | ( | ( | |||||||||
| Principal payments on PPP Loans | ( | ( | |||||||||
| Payment of deferred financing costs | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Proceeds from issuance of stock upon exercise of stock options | |||||||||||
| Distributions to non-controlling interests | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ||||||||||
| CASH AND CASH EQUIVALENTS, Beginning of period | |||||||||||
| CASH AND CASH EQUIVALENTS, End of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | $ | $ | |||||||||
| Non-cash financing activities: | |||||||||||
| Elimination of non-controlling interest upon dissolution of subsidiary | $ | $ | |||||||||
See notes to consolidated condensed financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS April 1, 2023 (Unaudited) | ||||||||
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
COVID-19 PANDEMIC AND INFLATION — Recent global events, including the COVID-19 pandemic ("COVID-19"), have adversely affected global economies, disrupted global supply chains and labor force participation and created significant volatility and disruption of financial markets. As a result, we experienced significant and variable disruptions to our business as federal, state and local restrictions were mandated, among other remedial measures, to mitigate the spread of the COVID-19 virus. While restrictions on the type of permitted operating model and occupancy capacity may continue to change, during fiscal 2022 all of our restaurants operated with no restrictions, other than in New York City where customers were required to show proof of vaccination through November 1, 2022.
In addition to the associated impacts of COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs. The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events, could lead to further government mandates, including but not limited to capacity restrictions, shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation and disruptions in our supply chain. If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending dividends, increasing borrowings or modifying our operating strategies. Some of these measures may have an adverse impact on our business, including possible impairments of assets.
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FAIR VALUE OF FINANCIAL INSTRUMENTS — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying a fair value hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The three levels of inputs are:
•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
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 has not provided for an allowance as it considers all of the counterparties will be able to meet their 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 July 1, 2023, the Company had accounts receivable balances due from one hotel operator totaling 50 % of total accounts receivable. As of October 1, 2022, the Company had accounts receivable balances due from two hotel operators totaling 54 % of total accounts receivable.
For the 13-week period ended July 1, 2023, the Company made purchases from two vendors that accounted for 21 % of total purchases. For the 13-week period ended July 2, 2022, the Company made purchases from two vendors that accounted for 24 % of total purchases.
For the 39-week period ended July 1, 2023, the Company made purchases from two vendors that accounted for 21 % of total purchases. For the 39-week period ended July 2, 2022, the Company made purchases from one vendor that accounted for 10 % of total purchases.
As of July 1, 2023 and October 1, 2022, 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).
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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
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 $5,256,000 and $4,793,000 in catering services revenue for the 13-week periods ended July 1, 2023 and July 2, 2022, respectively, and $12,379,000 and $8,771,000 for the 39-week periods ended July 1, 2023 and July 2, 2022, respectively. Unearned revenue, which is included in accrued expenses and other current liabilities on the consolidated condensed balance sheets, as of July 1, 2023 and October 1, 2022 was $4,579,000 and $5,534,000 , respectively, and as of as of July 2, 2022 and October 2, 2021 was $4,685,000 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 July 1, 2023 and October 1, 2022, the total liability for gift cards in the amounts of approximately $349,000 and $309,000 , 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.
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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 assets and liabilities of the Company’s consolidated VIEs:
| July 1, 2023 | October 1, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Inventories | |||||||||||
| Prepaid and refundable income taxes | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Due from Ark Restaurants Corp. and affiliates (1) | |||||||||||
| Fixed assets - net | |||||||||||
| Operating lease right-of-use assets - net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Accounts payable - trade | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Operating lease liabilities, less current portion | |||||||||||
| Total liabilities | |||||||||||
| Equity of variable interest entities | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
(1)Amounts Due from and to Ark Restaurants Corp. and affiliates are eliminated upon consolidation.
The liabilities of $2,498,000 and $2,745,000 at July 1, 2023 and October 1, 2022, respectively, recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets and creditors of the VIEs do not have recourse to the general credit of the Company; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, the assets of $3,267,000 and $4,006,000 at July 1, 2023 and October 1, 2022, respectively, 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, these assets can be used only to settle obligations of the three VIEs.
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3. RECENT RESTAURANT EXPANSION AND OTHER DEVELOPMENTS
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 agreed to spend a minimum of $1,500,000 to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues). Accordingly, the property was substantially closed for renovation on February 5, 2023 and reopened on April 28, 2023. The total cost of the refresh was approximately $1,900,000 .
On June 24, 2022, the Company extended its lease for America at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2033. In connection with the extension, the Company has agreed to spend a minimum of $4,000,000 to materially refresh the premises by December 31, 2024, subject to various extensions as set out in the agreement. No amounts have been expended to date related to this refresh.
On July 21, 2022, the Company extended its lease for the Village Eateries at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2034. As part of this extension, the Broadway Burger Bar and Grill and Gonzalez y Gonzalez, were carved out of the Village Eateries footprint and the extended date for those two locations is December 31, 2033. In connection with the extension, the Company has agreed to spend a minimum of $3,500,000 to materially refresh all three of these premises by December 31, 2023 (as extended from June 30, 2023). To date approximately $50,000 has been spent on this refresh.
4. RECENT RESTAURANT DISPOSITIONS AND OTHER DEVELOPMENTS
On July 5, 2022, the Company terminated its lease for Lucky 7 at the Foxwoods Resort Casino. The closure did not result in a material change to the Company's operations.
During the 26 weeks ended April 1, 2023, the Company dissolved the entity which owned Clyde Frazier's Wine and Dine, which was closed in September of 2021. In connection with the dissolution, the Company reclassified the remaining non-controlling interest balance to additional paid-in capital.
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 as of April 1, 2023 and October 1, 2022 of 7.4 222,000 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 Accounting Standards Updated ("ASU") No. 2016-01. There are no observable prices for this investment. During the 13 and 39 weeks ended July 1, 2023, the Company received distributions of $26,000 37,000 and $384,000 , respectively, from NMR. All of these amounts have been recorded as other income in the consolidated condensed statements of income.
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 39 weeks ended July 1, 2023 and July 2, 2022. 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.
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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). As of July 1, 2023 and October 1, 2022, $18,000 and $22,000 were due to AM VIE by NMR, respectively.
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. The principal and accrued interest related to this note in the amounts of $1,388,000 and $1,357,000 are included in Investment in and Receivable from New Meadowlands Racetrack in the consolidated condensed balance sheets at July 1, 2023 and October 1, 2022, respectively. On April 20, 2023, the due date of the note was extended to June 30, 2029.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| July 1, 2023 | October 1, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Sales tax payable | $ | $ | |||||||||
| Accrued wages and payroll related costs | |||||||||||
| Customer advance deposits | |||||||||||
| Accrued occupancy and other operating expenses | |||||||||||
| $ | $ | ||||||||||
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 Accounting Standards Codification ("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 July 1, 2023. 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 income.
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 income. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
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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 income are as follows:
| 13 Weeks Ended | 39 Weeks Ended | ||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
Operating lease expense - occupancy expenses (1) | $ | $ | $ | $ | |||||||||||||||||||
| Occupancy lease expense - general and administrative expenses | |||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||
| Total lease expense | $ | $ | $ | $ | |||||||||||||||||||
_________________________________
(1) Includes short-term leases, which are immaterial.
Supplemental cash flow information related to leases:
| 39 Weeks Ended | |||||||||||
| July 1, 2023 | July 2, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows related to operating leases | $ | $ | — | $ | |||||||
| Non-cash investing activities: | |||||||||||
| ROU assets obtained in exchange for new operating lease liabilities | $ | $ | — | $ | |||||||
The weighted average remaining lease terms and discount rates as of July 1, 2023 are as follows:
| Weighted Average Remaining Lease Term | Weighted Average Discount Rate | ||||||||||
| Operating leases | % | ||||||||||
The annual maturities of our lease liabilities as of July 1, 2023 are as follows:
| Operating Leases | ||||||||
| Fiscal Year Ending | (In thousands) | |||||||
| September 30, 2023 | $ | |||||||
| September 28, 2024 | ||||||||
| September 27, 2025 | ||||||||
| October 3, 2026 | ||||||||
| October 2, 2027 | ||||||||
| Thereafter | ||||||||
| Total future lease commitments | ||||||||
| Less imputed interest | ( | |||||||
| Present value of lease liabilities | $ | |||||||
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8. NOTES PAYABLE
Notes payable consist of the following:
| July 1, 2023 | October 1, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Promissory Note - Rustic Inn purchase | $ | $ | |||||||||
| Promissory Note - Shuckers purchase (see Note 14) | |||||||||||
| Promissory Note - Oyster House purchase (see Note 14) | |||||||||||
| Promissory Note - JB's on the Beach purchase | |||||||||||
| Promissory Note - Sequoia renovation | |||||||||||
| Promissory Note - Revolving Facility | |||||||||||
| Promissory Note - Blue Moon Fish Company | |||||||||||
| Paycheck Protection Program Loans | |||||||||||
| Less: Current maturities | ( | ( | |||||||||
| Less: Unamortized deferred financing costs | ( | ( | |||||||||
| Long-term portion | $ | $ | |||||||||
Credit Facility
On March 30, 2023, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), with its lender, Bank Hapoalim B.M. (“BHBM”). This facility, which matures on June 1, 2025, replaced our revolving credit facility which was entered into in June 1, 2018 (the "Prior Credit Agreement"). Under the terms of the Credit Agreement: (i) a promissory note under the Prior Credit Agreement in the amount of $6,666,000 was repaid, (ii) BHBM established a new revolving credit facility in the amount of $10,000,000 with a commitment termination date of May 31, 2025, (iii) the Company may use the revolving commitments of BHBM to obtain letters of credit up to a sublimit thereunder of $1,000,000 , and (iv) the LIBOR rate option for all borrowings was replaced with the secured overnight financing rate for U.S. Government Securities (“SOFR”). Advances under the Credit Agreement bear interest, at the Company's election at the time of the advance, at either BHBM's prime rate of interest plus a 0.45 % spread or SOFR plus a 3.65 % spread. In addition, there is a 0.30 % per annum fee for any unused portion of the $10,000,000 revolving facility. As of July 1, 2023, no advances were outstanding under the Credit Agreement. As of July 1, 2023, the weighted average interest on the outstanding BHBM indebtedness was approximately 8.8 %. The replacement of LIBOR with SOFR as a reference rate in our debt agreements did not have a material adverse effect on our financial position or materially affect our interest expense.
The Credit Agreement 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 Credit Agreement 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 and all other obligations under the Credit Agreement (including amounts outstanding under the Existing Term Notes (discussed below) 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.
On March 30, 2023, in connection with entering into the Credit Agreement, the Company amended each of the following promissory notes to replace the interest rate benchmark based on LIBOR and related LIBOR-based mechanics with an interest rate benchmark based on SOFR, with such amendments becoming effective upon the expiration of the then applicable interest period (the “Notes Amendment Effective Date”) and with the following terms:
•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 commencing on the Notes Amendment Effective Date, bears interest at SOFR plus 3.65 % per annum.
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•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 commencing on the Notes Amendment Effective Date, bears interest at SOFR plus 3.65 % per annum. This note was paid in full on April 4, 2023.
•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 commencing on the Notes Amendment Effective Date, bears interest at SOFR plus 3.65 % 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 commencing on the Notes Amendment Effective Date, bears interest at SOFR plus 3.65 % per annum. These notes were paid in full on April 4, 2023.
•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 commencing on the Notes Amendment Effective Date, bears interest at SOFR plus 3.65 % 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 commencing on the Notes Amendment Effective Date, bears interest at SOFR plus 3.65 % per annum.
•Promissory Note – Revolving Facility – On July 26, 2021, all outstanding borrowings under the previous 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, which was repaid on March 30, 2023, bore interest at SOFR plus 3.65 % 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 were evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bore interest at the rate of 1.00 % per annum. Funds from the PPP Loans were to 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, were to be forgiven if they were used for Qualifying Expenses as described in and in compliance with the CARES Act. During the 13 weeks ended July 1, 2023 and July 2, 2022, $0 and $1,298,000 of PPP Loans, respectively (including $0 and $46,000 of accrued interest, respectively) were forgiven. During the 39 weeks ended July 1, 2023 and July 2, 2022, $272,000 and $2,420,000 of PPP Loans, respectively, (including $6,000 and $66,000 of accrued interest, respectively) were forgiven. During the 39 weeks ended July 1, 2023 and July 2, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $1,571,000 , respectively. As of July 1, 2023, no PPP Loans were outstanding; however, the Company is appealing a forgiveness denial in the amount of $280,000 . Such loan was repaid as we await the appeal decision.
Deferred Financing Costs
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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 two of our leases, the Company obtained and delivered irrevocable letters of credit totaling approximately $542,000 as security deposits under such leases.
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.
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 39-week periods ended July 1, 2023 and July 2, 2022, no
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.
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A summary of stock option activity is presented below:
| 2023 | |||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding, beginning of period | $ | ||||||||||||||||||||||
| Options: | |||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Canceled or expired | ( | $ | |||||||||||||||||||||
| Outstanding and expected to vest, end of period | $ | $ | |||||||||||||||||||||
| Exercisable, end of period | $ | $ | |||||||||||||||||||||
| Shares available for future grant | |||||||||||||||||||||||
Compensation cost charged to operations for the 13 weeks ended July 1, 2023 and July 2, 2022 for share-based compensation programs was approximately $78,000 and $74,000 , respectively, and for the 39 weeks ended July 1, 2023 and July 2, 2022 was approximately $237,000 and $222,000 , respectively. The compensation cost recognized is classified as a general and administrative expense in the consolidated condensed statements of income.
As of July 1, 2023, there was approximately $306,000 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a period of 3.2 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 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 period ended December 31, 2022, the Company recorded income of $272,000 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.
The provision for income taxes for the 13-week period ended July 1, 2023 was $173,000 and the effective tax rate was 4.9 %. The effective tax rate differed from the federal statutory rate of 21% primarily as a result of the tax benefits related to the generation of FICA tax credits and operating income attributable to non-controlling interests that is not taxable to the Company.
The provision for income taxes for the 39-week period ended July 1, 2023 was $306,000 and the effective tax rate was 5.6 %. The effective tax rate differed from the federal 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 income related to the PPP loan forgiveness which is not taxable for income tax reporting purposes.
The provision for income taxes for the 13-week period ended July 2, 2022 was $905,000 and the effective tax rate was 13.9 %. The effective tax rate differed from the federal 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 income related to the PPP loan forgiveness which is not taxable for income tax reporting purposes.
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The provision for income taxes for the 39-week period ended July 2, 2022 was $1,290,000 and the effective tax rate was 12.3 %. The effective tax rate differed from the federal 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 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 (amounts in thousands):
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||
| July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||||||
| Basic | ||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||
| Stock options | ||||||||||||||||||||
| Diluted | ||||||||||||||||||||
For the 13- and 39-week period ended July 1, 2023, the dilutive effect of 359,000
For the 13- and 39-week period ended July 2, 2022, the dilutive effect of 422,000
13. DIVIDENDS
14. SUBSEQUENT EVENTS
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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 1, 2022 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 and Inflation
Recent global events, including the COVID-19 pandemic ("COVID-19"), have adversely affected global economies, disrupted global supply chains and labor force participation and created significant volatility and disruption of financial markets. As a result, we experienced significant and variable disruptions to our business as federal, state and local restrictions were mandated, among other remedial measures, to mitigate the spread of the COVID-19 virus. While restrictions on the type of permitted operating model and occupancy capacity may continue to change, during fiscal 2022 all of our restaurants operated with no restrictions, other than in New York City where customers were required to show proof of vaccination through November 1, 2022.
In addition to the associated impacts of COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs. The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events, could lead to further government mandates, including but not limited to capacity restrictions, shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation and disruptions in our supply chain. If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending dividends, increasing borrowings or modifying our operating strategies. Some of these measures may have an adverse impact on our business, including possible impairments of assets.
Overview
As of July 1, 2023, the Company owned and operated 17 restaurants and bars, 16 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 components into a single operating 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 July 1, 2023 and July 2, 2022 each included 13 and 39 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
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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 for the 13 weeks ended July 1, 2023 decreased -32.9% as compared to the same period of the prior year primarily as a result of the decreases in same-store sales as discussed below and continued increases in labor costs in connection with record low unemployment, partially offset by some easing in commodity prices. The Company’s operating income for the 39 weeks ended July 1, 2023 decreased -30.5% as compared to the same period of the prior year primarily as a result of increased labor costs in connection with record low unemployment and the temporary closure of Gallagher's Steakhouse in Las Vegas, NV for renovation, partially offset by increases in revenues from our event business in New York City and Washington, DC combined with some easing in commodity prices.
The following table summarizes the significant components of the Company’s operating results for the 13- and 39-week periods ended July 1, 2023 and July 2, 2022:
| 13 Weeks Ended | Variance | 39 Weeks Ended | Variance | ||||||||||||||||||||||||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | $ | % | July 1, 2023 | July 2, 2022 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||||||||||||||||||||||||||
| Food and beverage sales | $ | 49,807 | $ | 52,069 | $ | (2,262) | -4.3 | % | $ | 137,259 | $ | 134,127 | $ | 3,132 | 2.3 | % | |||||||||||||||||||||||||||||||
| Other revenue | 1,244 | 1,149 | 95 | 8.3 | % | 3,134 | 2,662 | 472 | 17.7 | % | |||||||||||||||||||||||||||||||||||||
| Total revenues | 51,051 | 53,218 | (2,167) | -4.1 | % | 140,393 | 136,789 | 3,604 | 2.6 | % | |||||||||||||||||||||||||||||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||||||||||||||||||||||||||
| Food and beverage cost of sales | 13,241 | 14,740 | (1,499) | -10.2 | % | 37,472 | 39,536 | (2,064) | -5.2 | % | |||||||||||||||||||||||||||||||||||||
| Payroll expenses | 17,194 | 16,205 | 989 | 6.1 | % | 49,027 | 43,926 | 5,101 | 11.6 | % | |||||||||||||||||||||||||||||||||||||
| Occupancy expenses | 6,151 | 5,966 | 185 | 3.1 | % | 17,589 | 15,814 | 1,775 | 11.2 | % | |||||||||||||||||||||||||||||||||||||
| Other operating costs and expenses | 6,274 | 5,996 | 278 | 4.6 | % | 17,557 | 15,974 | 1,583 | 9.9 | % | |||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 3,495 | 3,872 | (377) | -9.7 | % | 9,655 | 9,854 | (199) | -2.0 | % | |||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,059 | 1,018 | 41 | 4.0 | % | 3,230 | 3,245 | (15) | -0.5 | % | |||||||||||||||||||||||||||||||||||||
| Total costs and expenses | 47,414 | 47,797 | (383) | -0.8 | % | 134,530 | 128,349 | 6,181 | 4.8 | % | |||||||||||||||||||||||||||||||||||||
| OPERATING INCOME | $ | 3,637 | $ | 5,421 | $ | (1,784) | -32.9 | % | $ | 5,863 | $ | 8,440 | $ | (2,577) | -30.5 | % | |||||||||||||||||||||||||||||||
Revenues
During the 13 weeks ended July 1, 2023, revenues decreased -4.1% as compared to revenues for the 13 weeks ended July 2, 2022, primarily as a result of the changes in same-store sales discussed below.
During the 39 weeks ended July 1, 2023, revenues increased 2.6% as compared to revenues for the 39 weeks ended July 2, 2022. This increase resulted primarily from the changes in same-store sales discussed below as well as the impact of the substantial closure of Gallagher's Steakhouse at the New York-New York Hotel and Casino in Las Vegas, NV for renovation for the period from February 5, 2023 through April 27, 2023 as required by our lease.
Revenues related to Gallagher's Steakhouse for the period of closure were $1,068,000 as compared to $3,056,000 for the comparable prior period, of which $354,000 as compared to $730,000 related to the 13-week periods ended July 1, 2023 and July 2, 2022, respectively.
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Food and Beverage Same-Store Sales
On a Company-wide basis, same-store sales decreased -4.8% during the 13 weeks ended July 1, 2023 as compared to the same period of last year as follows:
| 13 Weeks Ended | Variance | ||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Las Vegas | $ | 13,202 | $ | 14,117 | $ | (915) | -6.5 | % | |||||||||||||||
| New York | 12,117 | 11,669 | 448 | 3.8 | % | ||||||||||||||||||
| Washington, DC | 3,773 | 4,021 | (248) | -6.2 | % | ||||||||||||||||||
| Atlantic City, NJ | 798 | 957 | (159) | -16.6 | % | ||||||||||||||||||
| Alabama | 5,184 | 5,231 | (47) | -0.9 | % | ||||||||||||||||||
| Florida | 13,743 | 15,259 | (1,516) | -9.9 | % | ||||||||||||||||||
| Same-store sales | 48,817 | 51,254 | $ | (2,437) | -4.8 | % | |||||||||||||||||
| Other | 990 | 815 | |||||||||||||||||||||
| Food and beverage sales | $ | 49,807 | $ | 52,069 | |||||||||||||||||||
Same-store sales in Las Vegas decreased -6.5% primarily as a result of the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023). Same-store sales in New York increased 3.8% driven primarily by strong revenues from our event business. Same-store sales in Washington, DC decreased -6.2% as a result of lower headcounts partially offset by targeted menu price increases. Same-store sales in Atlantic City decreased -16.6% as a result of lower customer traffic at the property where we are located. Same-store sales in Alabama decreased -0.9% primarily as a result of slightly lower customer headcounts. Same-store sales in Florida decreased -9.9% primarily as a result of lower headcounts as compared to the comparable prior period which benefited from outsized volumes as a result of the population increase in Southeast Florida.
On a Company-wide basis, same-store sales increased 1.7% during the 39 weeks ended July 1, 2023 as compared to the same period of last year as follows:
| 39 Weeks Ended | Variance | ||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Las Vegas | $ | 41,407 | $ | 40,838 | $ | 569 | 1.4 | % | |||||||||||||||
| New York | 27,610 | 23,581 | 4,029 | 17.1 | % | ||||||||||||||||||
| Washington, DC | 8,101 | 7,555 | 546 | 7.2 | % | ||||||||||||||||||
| Atlantic City, NJ | 2,142 | 2,525 | (383) | -15.2 | % | ||||||||||||||||||
| Alabama | 11,857 | 11,646 | 211 | 1.8 | % | ||||||||||||||||||
| Florida | 43,788 | 46,549 | (2,761) | -5.9 | % | ||||||||||||||||||
| Same-store sales | 134,905 | 132,694 | $ | 2,211 | 1.7 | % | |||||||||||||||||
| Other | 2,354 | 1,433 | |||||||||||||||||||||
| Food and beverage sales | $ | 137,259 | $ | 134,127 | |||||||||||||||||||
Same-store sales in Las Vegas increased 1.4% primarily as a result of increased customer traffic and targeted menu price increases partially offset by the negative impact of the temporary closure of Gallagher's Steakhouse for renovation on February 5, 2023 (which reopened on April 28, 2023). Same-store sales in New York increased 17.1% driven primarily by strong revenues from our event business and increased customer traffic. Same-store sales in Washington, DC increased 7.2% driven primarily by strong revenues from our event business and targeted menu price increases in the first two quarters, partially offset by lower headcounts in the third quarter. Same-store sales in Atlantic City decreased -15.2% as a result of lower customer traffic at the property where we are located. Same-store sales in Alabama increased 1.8% primarily as a result of increased customer traffic and targeted menu price increases in the first two quarters, partially offset by lower headcounts in the third quarter. Same-store sales in Florida decreased -5.9% primarily as a result of lower headcounts as compared to the comparable prior period which
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benefited from outsized volumes as a result of the population increase in Southeast Florida as a result of the migration of people during the pandemic partially offset by targeted menu price increases.
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 and other adjustments and fees.
Costs and Expenses
Costs and expenses for the 13 and 39 weeks ended July 1, 2023 and July 2, 2022 were as follows (in thousands):
| 13 Weeks Ended July 1, 2023 | % to Total Revenues | 13 Weeks Ended July 2, 2022 | % to Total Revenues | Increase (Decrease) | 39 Weeks Ended July 1, 2023 | % to Total Revenues | 39 Weeks Ended July 2, 2022 | % to Total Revenues | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| Food and beverage cost of sales | $ | 13,241 | 25.9 | % | $ | 14,740 | 27.7 | % | (1,499) | -10.2 | % | $ | 37,472 | 26.7 | % | $ | 39,536 | 28.9 | % | (2,064) | -5.2 | % | |||||||||||||||||||||||||
| Payroll expenses | 17,194 | 33.7 | % | 16,205 | 30.5 | % | 989 | 6.1 | % | 49,027 | 34.9 | % | 43,926 | 32.1 | % | 5,101 | 11.6 | % | |||||||||||||||||||||||||||||
| Occupancy expenses | 6,151 | 12.0 | % | 5,966 | 11.2 | % | 185 | 3.1 | % | 17,589 | 12.5 | % | 15,814 | 11.6 | % | 1,775 | 11.2 | % | |||||||||||||||||||||||||||||
| Other operating costs and expenses | 6,274 | 12.3 | % | 5,996 | 11.3 | % | 278 | 4.6 | % | 17,557 | 12.5 | % | 15,974 | 11.7 | % | 1,583 | 9.9 | % | |||||||||||||||||||||||||||||
| General and administrative expenses | 3,495 | 6.8 | % | 3,872 | 7.3 | % | (377) | -9.7 | % | 9,655 | 6.9 | % | 9,854 | 7.2 | % | (199) | -2.0 | % | |||||||||||||||||||||||||||||
| Depreciation and amortization | 1,059 | 2.1 | % | 1,018 | 1.9 | % | 41 | 4.0 | % | 3,230 | 2.3 | % | 3,245 | 2.4 | % | (15) | -0.5 | % | |||||||||||||||||||||||||||||
| Total costs and expenses | $ | 47,414 | $ | 47,797 | $ | (383) | $ | 134,530 | $ | 128,349 | $ | 6,181 | |||||||||||||||||||||||||||||||||||
Food and beverage costs as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 as compared with the same periods of last year decreased as a result of a very strong event business in New York City and Washington, DC, which has higher margins, combined with some easing in commodity prices.
Payroll expenses as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 increased as compared with the same periods of last year primarily as a result of record low unemployment and ongoing COVID-related labor challenges combined with merit increases and increasing minimum wages in the states where we operate.
Occupancy expenses as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 increased as compared with the same periods of last year primarily as a result of increases in base rents, percentage rents paid on higher sales in the current period and increases in property and liability insurance premiums.
Other operating costs and expenses as a percentage of total revenues for the 13 and 39 weeks ended July 1, 2023 as compared to the same period of last year increased primarily as a result of inflation.
General and administrative expenses (which relate solely to the corporate office in New York City) for the 13 and 39 weeks ended July 1, 2023 decreased as compared to the same periods of last year as a result of severance accruals in the prior period partially offset by annual merit increases.
Depreciation and amortization expense for the 13 weeks ended July 1, 2023 increased slightly as compared to the same period of last year primarily as a result of the Gallagher's Steakhouse renovation costs being placed into service on April 28, 2023. Depreciation and amortization expense for the 39 weeks ended July 1, 2023 decreased slightly as compared to the same period of last year primarily as a result of the timing of additions in the prior period.
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.
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As of July 1, 2023, we had a cash and cash equivalents balance of $13,986,000. The Company had a working capital deficit of ($4,081,000) at July 1, 2023 as compared with working capital of $4,210,000 at October 1, 2022. This decrease is primarily the result of the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023 and the prepayment of three promissory notes in the aggregate amount of $6,046,000 on April 4, 2023.
Inflation
The country is currently experiencing multi-decade high inflation. Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the cost of food and other raw materials, labor, energy and other supplies and services. While we have not had material disruptions in our supply chain, we have experienced some product shortages and higher costs for many commodities. There has also been a general shortage in the availability of restaurant staff and hourly workers in certain geographic areas in which we operate and has caused increases in the costs of recruiting and compensating such employees. In addition, certain operating and other costs, including health benefits, taxes, insurance, and other outside services, continue to increase with the general level of inflation and may also be subject to other cost and supply fluctuations outside of our control.
While we have been able to offset inflation and other changes in the costs of key operating resources by targeted increases in menu prices, coupled with more efficient purchasing practices, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions will limit our menu pricing flexibility. In addition, macroeconomic conditions that impact consumer discretionary spending for food away from home could make additional menu price increases imprudent. There can be no assurance that all of our future cost increases can be offset by higher menu prices or that higher menu prices will be accepted by our restaurant customers without any resulting changes in their visit frequencies or purchasing patterns.
Cash Flows for 39 Weeks Ended July 1, 2023 and July 2, 2022
Net cash provided by operating activities for the 39 weeks ended July 1, 2023 decreased to $6,872,000 as compared to $15,836,000 in the same period of last year. This decrease was primarily attributable to a decrease in consolidated net income and changes in net working capital primarily related to accounts receivable, inventory, accounts payable and accrued expenses.
Net cash provided by (used in) investing activities for the 39 weeks ended July 1, 2023 and July 2, 2022 was $2,008,000 and $(1,774,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants and, in the current period, the proceeds from the maturity of a certificate of deposit.
Net cash used in financing activities for the 39 weeks ended July 1, 2023 of $(18,333,000) resulted primarily from principal payments on notes payable of $15,835,000 (including the prepayment of a promissory note in the amount of $6,666,000 on March 30, 2023 and the prepayment of three promissory notes in the aggregate amount of $6,046,000 on April 4, 2023), the payment of dividends in the amount of $1,576,000 and the payment of distributions to non-controlling interests in the amount of $961,000. Net cash used in financing activities for the 39 weeks ended July 2, 2022 of $(6,631,000) resulted primarily from principal payments on notes payable of $5,275,000, the resumption of the payment of dividends in the amount of $444,000 and the payment of distributions to non-controlling interests in the amount of $1,543,000.
Recent Restaurant Expansions and Other Developments
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 agreed to spend a minimum of $1,500,000 (all of which has been expended to date) to materially refresh the premises by April 30, 2023 (as extended from September 30, 2022 due to supply chain issues), subject to various extensions as set out in the agreement. Accordingly, the property was substantially closed for renovation on February 5, 2023 and reopened on April 28, 2023. The total cost of the refresh was approximately $1,900,000.
On June 24, 2022, the Company extended its lease for America at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2033. In connection with the extension, the Company has agreed to spend a minimum of $4,000,000 to materially refresh the premises by December 31, 2024, subject to various extensions as set out in the agreement. No amounts have been expended to date related to this refresh.
On July 21, 2022, the Company extended its lease for the Village Eateries at the New York-New York Hotel and Casino in Las Vegas, NV through December 31, 2034. As part of this extension, the Broadway Burger Bar and Grill and Gonzalez y Gonzalez, were carved out of the Village Eateries footprint and the extended date for those two locations is December 31, 2033. In connection with the extension, the Company has agreed to spend a minimum of $3,500,000 to materially refresh all three of these premises by December 31, 2023 (as extended from June 30, 2023). To date approximately $50,000 has been spent on this refresh.
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Each of the above refresh obligations are to be consistent with designs approved by the landlord which shall not be unreasonably withheld. We will continue to pay all rent as required by the leases without abatement during construction. Note that our substantial completion of work set forth in plans approved by the landlord shall constitute our compliance with the requirements of the completion deadlines, regardless of whether or not the amount actually expended in connection therewith is less than the minimum.
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 and Other Developments
On July 5, 2022, the Company terminated its lease for Lucky 7 at the Foxwoods Resort Casino. The closure did not result in a material change to the Company's operations.
During the 26 weeks ended April 1, 2023, the Company dissolved the entity which owned Clyde Frazier's Wine and Dine, which was closed in September of 2021. In connection with the dissolution, the Company reclassified the remaining non-controlling interest balance to additional paid-in capital.
Credit Facility
On March 30, 2023, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”), with its lender, Bank Hapoalim B.M. (“BHBM”). This facility, which matures on June 1, 2025, replaced our revolving credit facility which was entered into in June 1, 2018. Under the terms of the Credit Agreement: (i) a promissory note under the Prior Credit Agreement in the amount of $6,666,000 was repaid, (ii) BHBM established a new revolving credit facility in the amount of $10,000,000, with a commitment termination date of May 31, 2025, (iii) the Company may use the revolving commitments of BHBM to obtain letters of credit up to a sublimit thereunder of $1,000,000, and (iv) the LIBOR rate option for all borrowings was replaced with the secured overnight financing rate for U.S. Government Securities (“SOFR”). Advances under the Credit Agreement bear interest, at the Company's election at the time of the advance, at either BHBM's prime rate of interest plus a 0.45% spread or SOFR plus a 3.65% spread. In addition, there is a 0.30% per annum fee for any unused portion of the $10,000,000 revolving facility. As of July 1, 2023, no advances were outstanding under the Credit Agreement. As of July 1, 2023, the weighted average interest on the outstanding BHBM notes payable was approximately 8.8%. The replacement of LIBOR with SOFR as a reference rate in our debt agreements did not have a material adverse effect on our financial position or materially affect our interest expense.
Borrowings and all other obligations under Credit Agreement, 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 Credit 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 Credit Agreement 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 were evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bore interest at the rate of 1.00% per annum. Funds from the PPP Loans were to 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
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the amounts thereunder, including accrued interest, were to be forgiven if they were used for Qualifying Expenses as described in and in compliance with the CARES Act. During the 13 weeks ended July 1, 2023 and July 2, 2022, $0 and $1,298,000 of PPP Loans, respectively (including $0 and $46,000 of accrued interest, respectively) were forgiven. During the 39 weeks ended July 1, 2023 and July 2, 2022, $272,000 and $2,420,000 of PPP Loans, respectively, (including $6,000 and $66,000 of accrued interest, respectively) were forgiven. During the 39 weeks ended July 1, 2023 and July 2, 2022, the Company made payments related to the unforgiven portion of PPP Loans in the aggregate amount of $531,000 and $1,571,000, respectively. As of July 1, 2023, no PPP Loans were outstanding; however, the Company is appealing a forgiveness denial in the amount of $280,000. Such loan was repaid as we await the appeal decision.
Cash Flow Outlook
We are not aware of any trends or events that would materially affect our capital requirements or liquidity. We believe that our existing cash balances, internal cash-generating capabilities, current banking facilities and ability to secure additional financing, if necessary, are sufficient to finance our capital expenditures, debt maturities and other operating activities for at least the next twelve months.
Recent Events
On August 8, 2023, the Board of Directors declared a quarterly cash dividend of $0.1875 per share to be paid on September 12, 2023 to shareholders of record of each share of the Company's common stock at the close of business on August 31, 2023.
Critical Accounting Estimates
The preparation of financial statements requires 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 critical accounting estimates underlying the Company’s consolidated condensed financial statements include projected cash flows for fixed asset impairments, 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 long-lived 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 estimates are described in the Company’s MD&A included in Form 10-K for the year ended October 1, 2022. There have been no significant changes to such critical accounting estimates during the third fiscal quarter 2023.
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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 July 1, 2023 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 third quarter of fiscal 2023 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.
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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.
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. In December 2020, the parties reached a settlement agreement resolving all issues alleged in the Complaint, which received final approval by the New York State Supreme Court in October 2022, for approximately $600,000, which was previously accrued on the October 1, 2022 consolidated balance sheet. Under the terms of the court approved settlement agreement, settlement proceeds were distributed to the Plaintiffs in the first quarter of fiscal year 2023.
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
Insider Trading Arrangements and Policies
During the third quarter of 2023, none of our directors or executive officers adopted terminated
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).
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__________________________
* Filed herewith.
** Furnished herewith.
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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.
| Date: | August 15, 2023 | ||||
| ARK RESTAURANTS CORP. | |||||
| By: | /s/ Michael Weinstein | ||||
| Michael Weinstein | |||||
| Chairman of the Board and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| By: | /s/ Anthony J. Sirica | ||||
| Anthony J. Sirica | |||||
| President, Chief Financial Officer and Director | |||||
| (Principal Financial and Accounting Officer) | |||||
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EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Weinstein, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Ark Restaurants Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 15, 2023
| /s/ Michael Weinstein | |||||
| Michael Weinstein | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony J. Sirica, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Ark Restaurants Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 15, 2023
| /s/ Anthony J. Sirica | |||||
| Anthony J. Sirica | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Exhibit 32
Certificate of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q for the quarter ended July 1, 2023 of Ark Restaurants Corp. (the “Registrant”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael Weinstein, Chief Executive Officer and Anthony J. Sirica, Chief Financial Officer, of the Registrant, certify, pursuant to 18 U.S.C. § 1350, that to our knowledge:
(i)this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(ii)the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated as of this 15th day of August 2023
| /s/ Michael Weinstein | /s/ Anthony J. Sirica | |||||||
| Michael Weinstein | Anthony J. Sirica | |||||||
| Chief Executive Officer | Chief Financial Officer | |||||||
| (Principal Executive Officer) | (Principal Financial Officer) | |||||||