arkr-20220101

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 1, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 1-09453

ARK RESTAURANTS CORP.

(Exact name of registrant as specified in its charter)


New York						13-3156768
(State or Other Jurisdiction of Incorporation or Organization)						(IRS Employer Identification No.)


85 Fifth Avenue,	New York,	NY	10003
(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

Common Stock, par value $.01 per share

ARKR

The NASDAQ Stock Market LLC

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

☐

Non-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 February 12, 2022, there were 3,551,566 shares of the registrant's common stock outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

On one or more occasions, we may make statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements, other than statements of historical facts, included or incorporated by reference herein relating to management’s current expectations of future financial performance, continued growth and changes in economic conditions or capital markets are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “hopes,” “will continue” or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that our projections will be achieved. Factors that may cause such differences include: economic conditions generally and in each of the markets in which we are located, the amount of sales contributed by new and existing restaurants, labor costs for our personnel, fluctuations in the cost of food products, adverse weather conditions, changes in consumer preferences and the level of competition from existing or new competitors.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of unknown factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of the factors that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to:

•the risk associated with the continued impacts of the COVID-19 pandemic on our company, our employees, our customers, our partners, our industry and the economy as a whole, including the potential for a complete shutdown of our restaurants, supply chain disruptions, demonstrations, political unrest and potential damage to our restaurants;

•the adverse impact of current and future economic conditions on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing;

•the adverse impact of civil unrest 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 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;

•increases in food, beverage and supply costs, especially for seafood, shellfish, chicken and beef;

•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

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•the impact of any failure of our information technology system or any breach of our network security.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q, and 8-K, our Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable, any or all of the forward-looking statements may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the Securities and Exchange Commission on Forms 10-Q, 10-K, 8-K and Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “ARKR” and the “Company” refer specifically to Ark Restaurants Corp., and its subsidiaries, partnerships, variable interest entities and predecessor entities.

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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)


	January 1, 2022		October 2, 2021
	(unaudited)		(Note 1)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents (includes $564 at January 1, 2022 and $785 at October 2, 2021 related to VIEs)	$	20,167	$	19,171
Accounts receivable (includes $321 at January 1, 2022 and $358 at October 2, 2021 related to VIEs)	4,009		4,113
Employee receivables	339		380
Inventories (includes $40 at January 1, 2022 and $35 at October 2, 2021 related to VIEs)	4,425		3,510
Prepaid and refundable income taxes (includes $278 at January 1, 2022 and October 2, 2021 related to VIEs)	3,775		3,896
Prepaid expenses and other current assets (includes $121 at January 1, 2022 and $277 at October 2, 2021 related to VIEs)	2,054		3,205
Total current assets	34,769		34,275
FIXED ASSETS - Net (includes $220 at January 1, 2022 and $218 at October 2, 2021 related to VIEs)	35,584		36,174
OPERATING LEASE RIGHT-OF-USE ASSETS - Net (includes $2,277 at January 1, 2022 and $2,342 at October 2, 2021 related to VIEs)	54,268		56,336
INTANGIBLE ASSETS - Net	336		376
GOODWILL	17,440		17,440
TRADEMARKS	4,220		4,220
DEFERRED INCOME TAXES	3,520		3,700
INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK	6,435		6,425
OTHER ASSETS (includes $82 at January 1, 2022 and October 2, 2021 related to VIEs)	2,254		2,270
TOTAL ASSETS	$	158,826	$	161,216

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Accounts payable - trade (includes $115 at January 1, 2022 and $213 at October 2, 2021 related to VIEs)	$	4,806	$	4,886
Accrued expenses and other current liabilities (includes $567 at January 1, 2022 and $374 at October 2, 2021 related to VIEs)	13,217		13,679
Current portion of operating lease liabilities (includes $254 at January 1, 2022 and $249 at October 2, 2021 related to VIEs)	6,298		6,165
Current portion of notes payable (includes $9 at January 1, 2022 and $95 at October 2, 2021 related to VIEs)	6,756		6,973
Total current liabilities	31,077		31,703
OPERATING LEASE LIABILITIES, LESS CURRENT PORTION (includes $2,128 at January 1, 2022 and $2,193 at October 2, 2021 related to VIEs)	50,504		52,552
NOTES PAYABLE, LESS CURRENT PORTION, net of deferred financing costs (includes $101 at January 1, 2022 and October 2, 2021 related to VIEs)	23,819		25,509
TOTAL LIABILITIES	105,400		109,764
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock, par value $0.01 per share - authorized, 10,000 shares; issued and outstanding, 3,551 shares at January 1, 2022 and October 2, 2021	36		36
Additional paid-in capital	14,566		14,492
Retained earnings	38,093		35,884
Total Ark Restaurants Corp. shareholders’ equity	52,695		50,412
NON-CONTROLLING INTERESTS	731		1,040
TOTAL EQUITY	53,426		51,452
TOTAL LIABILITIES AND EQUITY	$	158,826	$	161,216

See notes to consolidated condensed financial statements.

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ARK RESTAURANTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Amounts)


	13 Weeks Ended
	January 1, 2022		January 2, 2021
REVENUES:
Food and beverage sales	$	43,237	$	19,889
Other revenue	749		410
Total revenues	43,986		20,299
COSTS AND EXPENSES:
Food and beverage cost of sales	12,542		5,943
Payroll expenses	14,241		8,651
Occupancy expenses	5,232		3,473
Other operating costs and expenses	5,138		2,811
General and administrative expenses	2,963		1,787
Depreciation and amortization	1,079		941
Total costs and expenses	41,195		23,606
OPERATING INCOME (LOSS)	2,791		(3,307)
OTHER (INCOME) EXPENSE:
Interest expense	285		324
Interest income	(10)		(13)
Other income	(222)		—
Total other (income) expense, net	53		311
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES	2,738		(3,618)
Provision (benefit) for income taxes	309		(2,919)
CONSOLIDATED NET INCOME (LOSS)	2,429		(699)
Net income attributable to non-controlling interests	(220)		(64)
NET INCOME (LOSS) ATTRIBUTABLE TO ARK RESTAURANTS CORP.	$	2,209	$	(763)

NET INCOME (LOSS) PER ARK RESTAURANTS CORP. COMMON SHARE:
Basic	$	0.62	$	(0.22)
Diluted	$	0.61	$	(0.22)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic	3,551		3,502
Diluted	3,597		3,502

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 January 1, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings		Total Ark Restaurants Corp. Shareholders’ Equity		Non- controlling Interests		Total Equity
	Shares	Amount

Balance - October 2, 2021	3,551	$	36	$	14,492	$	35,884	$	50,412	$	1,040	$	51,452

Net income	—	—		—		2,209		2,209		220		2,429
Exercise of stock options	—	—		—		—		—		—		—
Stock-based compensation	—	—		74		—		74		—		74
Distributions to non-controlling interests	—	—		—		—		—		(529)		(529)

Balance - January 1, 2022	3,551	$	36	$	14,566	$	38,093	$	52,695	$	731	$	53,426


For the 13 weeks ended January 2, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Total Ark Restaurants Corp. Shareholders’ Equity		Non- controlling Interests		Total Equity
	Shares	Amount

BALANCE - October 3, 2020	3,502	$	35	$	13,503	$	22,989	$	36,527	$	626	$	37,153

Net income (loss)	—	—		—		(763)		(763)		64		(699)
Stock-based compensation	—	—		60		—		60		—		60
Distributions to non-controlling interests	—	—		—		—		—		(72)		(72)

BALANCE - January 2, 2021	3,502	$	35	$	13,563	$	22,226	$	35,824	$	618	$	36,442

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)


	13 Weeks Ended
	January 1, 2022		January 2, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income (loss)	$	2,429	$	(699)
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation	74		60
Deferred income taxes	180		(1,197)
Accrued interest on note receivable from NMR	(10)		(14)
Depreciation and amortization	1,079		941
Amortization of operating lease assets	153		601
Amortization of deferred financing costs	12		15
Changes in operating assets and liabilities:
Accounts receivable	104		(695)
Inventories	(915)		219
Prepaid, refundable and accrued income taxes	121		(1,726)
Prepaid expenses and other current assets	1,151		185
Other assets	16		(120)
Accounts payable - trade	(80)		147
Accrued expenses and other current liabilities	(462)		(702)
Net cash provided by (used in) operating activities	3,852		(2,985)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets	(449)		(594)
Loans and advances made to employees	(11)		(18)
Payments received on employee receivables	52		16
Purchase of Blue Moon Fish Company, net of cash acquired	—		(1,817)
Net cash used in investing activities	(408)		(2,413)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable	(1,919)		(675)
Distributions to non-controlling interests	(529)		—
Net cash used in financing activities	(2,448)		(675)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	996		(6,073)
CASH AND CASH EQUIVALENTS, Beginning of period	19,171		16,886
CASH AND CASH EQUIVALENTS, End of period	$	20,167	$	10,813

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	263	$	175
Income taxes	$	8	$	5
Non-cash financing activities:
Note payable in connection with the purchase of Blue Moon Fish Company	$	—	$	1,000
Accrued distributions to non-controlling interests	$	—	$	72

See notes to consolidated condensed financial statements.

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ARK RESTAURANTS CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS January 1, 2022 (Unaudited)

1. BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

The consolidated condensed balance sheet as of October 2, 2021, which has been derived from the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended October 2, 2021 (“Form 10-K”), and the unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All adjustments that, in the opinion of management are necessary for a fair presentation for the periods presented, have been reflected as required by Article 10 of Regulation S-X. Such adjustments are of a normal, recurring nature. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K.

COVID-19 PANDEMIC — We are subject to continued risks and uncertainties as a result of the outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency in March 2020. We experienced significant disruptions to our business as suggested and mandated social distancing and shelter-in-place orders led to the temporary closure of all of our restaurants. In the third quarter of fiscal 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms, and we began to reopen dining rooms. While restrictions on the type of permitted operating model and occupancy capacity may continue to change, all of our restaurants are operating with no indoor dining restrictions other than in New York City where customers are required to show proof of vaccination. We cannot predict how long the COVID-19 pandemic will last, whether vaccines will be effective at eliminating or slowing the spread of the virus or variants, whether it will reoccur or whether variants will spike, what additional restrictions may be enacted, to what extent we can maintain sales volumes during or following any resumption of mandated social distancing protocols or vaccination or mask mandates and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole. The ongoing effects of the COVID-19 pandemic, including, but not limited to, labor-related impacts, supply chain disruption and consumer behavior, will determine the continued significance of the impact of the COVID-19 pandemic to our operating results and financial position.

PRINCIPLES OF CONSOLIDATION — The consolidated condensed financial statements include the accounts of Ark Restaurants Corp. and all of its wholly-owned subsidiaries, partnerships and other entities in which it has a controlling interest, collectively herein referred to as the “Company”. Also included in the consolidated condensed financial statements are certain variable interest entities (“VIEs”). All significant intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES — The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The accounting estimates that require management’s most difficult and subjective judgments include: projected cash flows, allowances for potential bad debts on receivables, assumptions regarding discount rates related to lease accounting, the useful lives and recoverability of its assets, such as property and intangibles, fair values of financial instruments and share-based compensation, estimates made in connection with acquisitions and impairment analyses, the realizable value of its tax assets and determining when investment impairments are other-than-temporary. Because of the uncertainty in such estimates, actual results may differ from these estimates. The results of operations for the 13 weeks ended January 1, 2022 are not necessarily indicative of the results to be expected for any other interim period or for the year ending October 1, 2022.

NON-CONTROLLING INTERESTS — Non-controlling interests represent capital contributions, income and loss attributable to the shareholders of less than wholly-owned and consolidated entities.

SEASONALITY — The Company has substantial fixed costs that do not decline proportionally with sales. Although our business is highly seasonal, our broader geographical reach as a result of recent acquisitions mitigates some of the risk. For instance, the second quarter of our fiscal year, consisting of the non-holiday portion of the cold weather season in New York and Washington, D.C. (January, February and March), is the poorest performing quarter; however, in recent years this has been partially offset by our locations in Florida as they experience increased results in the winter months. We generally achieve our best results during the warm weather, attributable to our extensive outdoor dining availability, particularly at Bryant Park in New York and Sequoia in Washington, D.C. (our largest restaurants) and our outdoor cafes. However, even during summer months

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these facilities can be adversely affected by unusually cool or rainy weather conditions. Our facilities in Las Vegas are indoor and generally operate on a more consistent basis throughout the year.

FAIR VALUE OF FINANCIAL INSTRUMENTS — The carrying amount of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair values of notes receivable and payable are determined using current applicable rates for similar instruments as of the balance sheet dates and approximate the carrying value of such debt instruments.

CASH AND CASH EQUIVALENTS — Cash and cash equivalents include cash on hand, deposits with banks and highly liquid investments generally with original maturities of three months or less. Outstanding checks in excess of account balances, typically vendor payments, payroll and other contractual obligations disbursed after the last day of a reporting period are reported as a current liability in the accompanying consolidated condensed balance sheets.

CONCENTRATIONS OF CREDIT RISK — Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company reduces credit risk by placing its cash and cash equivalents with major financial institutions with high credit ratings. At times, such amounts may exceed federally insured limits. Accounts receivable are primarily comprised of normal business receivables, such as credit card receivables, that are collected in a short period of time and amounts due from the hotel operators where the Company has a location, and are recorded upon satisfaction of the performance obligation. The Company reviews the collectability of its receivables on an ongoing basis, and provides for an allowance when it considers the entity unable to meet its obligation. The concentration of credit risk with respect to accounts receivable is generally limited due to the short payment terms extended by the Company and the number of customers comprising the Company’s customer base.

As of January 1, 2022, the Company had accounts receivable balances due from one hotel operator totaling 33.6% of total accounts receivable. As of October 2, 2021, the Company had accounts receivable balances due from one hotel operator totaling 37% of total accounts receivable.

For the 13-week period ended January 1, 2022, the Company did not make purchases from any one vendor that accounted for more than 10% of total purchases. For the 13-week period ended January 2, 2021, the Company made purchases from two vendors that accounted for 24% of total purchases.

As of January 1, 2022 and October 2, 2021, all debt outstanding, other than Paycheck Protection Program loans and the note payable to the sellers of the Blue Moon Fish Company, is with one lender (see Note 8 – Notes Payable).

GOODWILL AND TRADEMARKS — Goodwill and trademarks are not amortized, but are subject to impairment analysis. We assess the potential impairment of goodwill and trademarks annually (at the end of our fourth quarter) and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If we determine through the impairment review process that goodwill or trademarks are impaired, we record an impairment charge in our consolidated condensed statements of operations.

Due to the recent impact of the COVID-19 pandemic to the global economy, including but not limited to, the volatility of the Company's stock price, temporary closures of the Company's restaurants and the challenging environment for the restaurant industry in general, the Company determined that there were indicators of potential impairment of its goodwill and trademarks during the 13 weeks ended January 1, 2022. As such, the Company performed a qualitative assessment for both goodwill and its trademarks and concluded that the fair value of these assets exceeded their carrying values. Accordingly, the Company did not record any impairment to its goodwill or trademarks during the 13 weeks ended January 1, 2022. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

LONG-LIVED AND RIGHT-OF-USE ASSETS — Long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization, and right-of-use assets ("ROU assets") are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various factors including estimated future sales growth and estimated profit margins are included in this analysis.

The Company considers a triggering event related to long-lived assets or ROU assets in a net asset position to have occurred related to a specific restaurant if the restaurant’s cash flows for the last 12 months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s

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assets. Additionally, the Company considers a triggering event related to ROU assets to have occurred related to a specific lease if the location has been subleased and future estimated sublease income is less than current lease payments. If the Company concludes that the carrying value of certain long-lived and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the long-lived or ROU assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material.

Based on the results of this analysis, no impairment charges were recognized related to long-lived assets and ROU assets during the 13 weeks ended January 1, 2022. Given the inherent uncertainty in projecting results of restaurants under the current circumstances, particularly taking into account the projected impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis. For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

REVENUE RECOGNITION — We recognize revenue upon the satisfaction of our performance obligation by transferring control over a product or service to a restaurant guest or other customer. Revenues from restaurant operations are presented net of discounts, coupons, employee meals and complimentary meals and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Catering service revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for the service. Revenues from catered events are recognized in income upon satisfaction of the performance obligation (the date the event is held) and all customer payments, including nonrefundable upfront deposits, are deferred as a contract liability until such time. We recognized $3,213,000 and $137,000 in catering services revenue for the 13-week periods ended January 1, 2022 and January 2, 2021, respectively. Unearned revenue, which is included in accrued expenses and other current liabilities on the consolidated condensed balance sheets as of January 1, 2022 and October 2, 2021 was $4,540,000 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 January 1, 2022 and October 2, 2021, the total liability for gift cards in the amounts of approximately $384,000 and $252,000, respectively, are included in accrued expenses and other current liabilities in the consolidated condensed balance sheets.

Other revenues include purchase service fees which represent commissions earned by a subsidiary of the Company for providing services to other restaurant groups, as well as license fees, property management fees and other rentals.

LEASES — We determine if an arrangement contains a lease at inception. An arrangement contains a lease if it implicitly or explicitly identifies an asset to be used and conveys the right to control the use of the identified asset in exchange for consideration. As a lessee, we include operating leases in Operating lease right-of-use assets and Operating lease liabilities in our consolidated condensed balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized upon commencement of the lease based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. Our lease terms may include options to extend or terminate the lease. Options are included when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Amendments or modifications to lease terms are accounted for as variable lease payments. Leases with a lease term of 12 months or less are accounted for using the practical expedient which allows for straight-line rent expense over the remaining term of the lease.

SEGMENT REPORTING — As of January 1, 2022, the Company owned and operated 17 restaurants and bars, 17 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and services, class of customers and distribution methods. The Company believes it meets the criteria for aggregating its operating segments into a single reporting segment in accordance with applicable accounting guidance.

RECENTLY ADOPTED ACCOUNTING PRINCIPLES — In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein. The Company adopted this guidance in the first quarter of fiscal 2022. Such adoption did not have a material impact on our consolidated condensed financial statements.

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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 required disclosures associated with the Company’s consolidated VIEs:


	January 1, 2022		October 2, 2021
	(in thousands)
Cash and cash equivalents	$	564	$	785
Accounts receivable	321		358
Inventories	40		35
Prepaid and refundable income taxes	278		278
Prepaid expenses and other current assets	121		277
Due from Ark Restaurants Corp. and affiliates (1)	321		187
Fixed assets - net	220		218
Operating lease right-of-use assets - net	2,277		2,342
Other assets	82		82
Total assets	$	4,224	$	4,562

Accounts payable - trade	$	115	$	213
Accrued expenses and other current liabilities	567		374
Current portion of operating lease liabilities	254		249
Current portion of notes payable	9		95
Operating lease liabilities, less current portion	2,128		2,193
Notes payable, less current portion	101		101
Total liabilities	3,174		3,225
Equity of variable interest entities	1,050		1,337
Total liabilities and equity	$	4,224	$	4,562

(1)Amounts Due from and to Ark Restaurants Corp. and affiliates are eliminated upon consolidation.

The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against the Company’s general assets.

3. RECENT RESTAURANT EXPANSION AND OTHER DEVELOPMENTS

On December 1, 2020, the Company, through a newly formed, wholly-owned subsidiary, acquired the assets of Bear Ice, Inc. and File Gumbo Inc., which collectively operated a restaurant and bar named Blue Moon Fish Company located in Lauderdale-by-the- Sea, FL. The total purchase price of $2,820,000, as set out below, was paid with cash in the amount of $1,820,000 and a four-year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest. The acquisition was accounted for as a business combination. Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four five-year extension options. Rent payments under the lease are approximately $360,000 per year and increase by 15% as each option is exercised.

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The fair values of the assets acquired were allocated as follows (amounts in thousands):


Cash	$	3
Inventory	39
Security deposit	30
Trademarks	500
Non-compete agreement	380
Goodwill	1,870
Liabilities assumed	(2)
	$	2,820

Goodwill recognized in connection with this transaction represents the residual amount of the purchase price over separately identifiable intangible assets and is expected to be deductible for tax purposes.

The consolidated condensed statements of operations for the 13 weeks ended January 1, 2022 and January 2, 2021 include revenues and income of approximately $1,982,000 and $356,000 and $478,000 and $7,000, respectively, related to Blue Moon Fish Company. The unaudited pro forma financial information set forth below is based upon the Company’s historical consolidated condensed statements of operations for the 13 weeks ended January 2, 2021 and includes the results of operations for Blue Moon Fish Company for the period prior to acquisition. The unaudited pro forma financial information (which is presented in thousands except per share and share data), which has been adjusted for interest expense on the note, is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the acquisition of Blue Moon Fish Company occurred on the dates indicated, nor does it purport to represent the results of operations for future periods.


	13 Weeks Ended
	January 2, 2021


Total revenues	$	20,976
Net income (loss)	$	(728)
Net income (loss) per share - basic	$	(0.21)
Net income (loss) per share - diluted	$	(0.21)

Shares - Basic	3,502
Shares - Diluted	3,502

On January 26, 2021, the Company exercised its right-of-first-refusal to acquire the land, building and parking lot associated with JB’s on the Beach and immediately contributed such rights and interest to an unrelated entity ("Sandcastle 1, LLC ") that purchased the properties on March 22, 2021. In exchange, the Company received a 5% interest in Sandcastle 1, LLC, which plans future development of the sites. In addition, all rights and privileges under the current lease were assigned to Sandcastle 1, LLC, as landlord and the lease terms remain unchanged.

4. RECENT RESTAURANT DISPOSITIONS

On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ which were on a month-to-month, no rent lease. The closure of these properties occurred on January 2, 2021 and did not result in a material charge to the Company’s operations.

As of January 2, 2021, the Company determined that it will not reopen Thunder Grill in Washington, D.C. which has been closed since March 20, 2020. This closure did not result in a material charge to the Company’s operations.

On September 1, 2021, the Company closed Clyde Frazier's Wine and Dine and terminated the lease. In connection with termination, the Company recorded a gain of $810,000 during the year ended October 2, 2021 consisting of: (i) rent and other costs incurred in accordance with the termination provisions of the lease in the amount of $318,000, (ii) impairment of long-lived assets in the amount of $69,000 and (iii) the write-off of our security deposit in the amount of $121,000 offset by the write-off of ROU assets and related lease liabilities in the net amount of $1,318,000.

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Included in the consolidated condensed statement of operations for the 13 weeks ended January 2, 2021 are revenues and net operating losses of approximately $582,000 and $(131,000) related to the above properties.

5. INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK

On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC (“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing member of NMR with a then 63.7% ownership interest. On November 19, 2013, the Company invested an additional $464,000 in NMR through the purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership of 11.6% of Meadowlands Newmark, LLC, and an effective ownership interest in NMR of 7.4%, subject to dilution. In 2015, the Company invested an additional $222,000 in NMR and in February 2017, the Company invested an additional $222,000 in NMR, both as a result of capital calls with no change in ownership, bringing its total investment to $5,108,000. The Company accounts for this investment at cost, less impairment, adjusted for subsequent observable price changes in accordance with ASU No. 2016-01. There are no observable prices for this investment. During the 13 weeks ended January 1, 2022, the Company received a distribution of $222,000 from NMR which has been recorded as other income in the consolidated condensed statement of operations.

Due to the impacts of the COVID-19 pandemic to the global economy, the Company evaluated its investment in NMR for impairment and concluded that its fair value exceeds the carrying value. Accordingly, the Company did not record any impairment during the 13 weeks ended January 1, 2022 and January 2, 2021. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material. Any future changes in the carrying value of our investment in NMR will be reflected in earnings.

In addition to the Company’s ownership interest in NMR through Meadowlands Newmark, LLC, if casino gaming is approved at the Meadowlands and NMR is granted the right to conduct said gaming, neither of which can be assured, the Company shall be granted the exclusive right to operate the food and beverage concessions in the gaming facility with the exception of one restaurant.

In conjunction with this investment, the Company, through a 97% owned subsidiary, Ark Meadowlands LLC (“AM VIE”), also entered into a long-term agreement with NMR for the exclusive right to operate food and beverage concessions serving the new raceway facilities (the “Racing F&B Concessions”) located in the new raceway grandstand constructed at the Meadowlands Racetrack in northern New Jersey. Under the agreement, NMR is responsible to pay for the costs and expenses incurred in the operation of the Racing F&B Concessions, and all revenues and profits thereof inure to the benefit of NMR. AM VIE receives an annual fee equal to 5% of the net profits received by NMR from the Racing F&B Concessions during each calendar year. AM VIE is a variable interest entity; however, based on qualitative consideration of the contracts with AM VIE, the operating structure of AM VIE, the Company’s role with AM VIE, and that the Company is not obligated to absorb expected losses of AM VIE, the Company has concluded that it is not the primary beneficiary and not required to consolidate the operations of AM VIE.

The Company’s maximum exposure to loss as a result of its involvement with AM VIE is limited to any receivable from AM VIE’s primary beneficiary (NMR, a related party). As of January 1, 2022 and October 2, 2021, $57,000 and $120,000 were due to AM VIE by NMR.

On April 25, 2014, the Company loaned $1,500,000 to Meadowlands Newmark, LLC. The note bears interest at 3%, compounded monthly and added to the principal, and is due in its entirety on January 31, 2024. The note may be prepaid, in whole or in part, at any time without penalty or premium. On July 13, 2016, the Company made an additional loan to Meadowlands Newmark, LLC in the amount of $200,000. Such amount is subject to the same terms and conditions as the original loan as discussed above. The principal and accrued interest related to this note in the amounts of $1,327,000 and $1,317,000 are included in Investment In and Receivable from New Meadowlands Racetrack in the consolidated condensed balance sheets at January 1, 2022 and October 2, 2021, respectively.

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6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:


	January 1, 2022		October 2, 2021
	(In thousands)

Sales tax payable	$	953	$	910
Accrued wages and payroll related costs	4,392		4,758
Customer advance deposits	4,540		4,988
Accrued occupancy and other operating expenses	3,332		3,023
	$	13,217	$	13,679

7. LEASES

Other than locations where we own the underlying property, we lease our restaurant locations as well as our corporate office under various non-cancelable real estate lease agreements that expire on various dates through 2046. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of ASC Topic 842.

Upon taking possession of a leased asset, we determine its classification as an operating or finance lease. All of our real estate leases are classified as operating leases. We do not have any finance leases as of January 1, 2022. Generally, our real estate leases have initial terms ranging from 10 to 25 years and typically include renewal options. Renewal options are recognized as part of the ROU assets and lease liabilities if it is reasonably certain at the date of adoption that we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, variable lease expense is accrued in proportion to the sales recognized during the period. For operating leases that include rent holidays and rent escalation clauses, we recognize lease expense on a straight-line basis over the lease term from the date we take possession of the leased property. We record the straight-line lease expense and any contingent rent, if applicable, in occupancy expenses in the consolidated condensed statements of operations.

Many of our real estate leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs (“non-lease components”) which are included in occupancy related expenses in the consolidated condensed statements of operations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As there were no explicit rates provided in our leases, we used our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The components of lease expense in the consolidated condensed statements of operations are as follows:


	13 Weeks Ended
	January 1, 2022		January 2, 2021
	(In thousands)
Operating lease expense - occupancy expenses (1)	$	2,273	$	2,217
Occupancy lease expense - general and administrative expenses	93		41
Variable lease expense	1,897		439
Total lease expense	$	4,263	$	2,697

_________________________________

(1) Includes short-term leases, which are immaterial.

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Supplemental cash flow information related to leases:


	13 Weeks Ended
	January 1, 2022		January 2, 2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	3,592	$	1,965
Non-cash investing activities:
ROU assets obtained in exchange for new operating lease liabilities	$	—	$	8,712

The weighted average remaining lease terms and discount rates as of January 1, 2022 are as follows:


	Weighted Average Remaining Lease Term	Weighted Average Discount Rate
Operating leases	13.5 years	5.2	%

The annual maturities of our lease liabilities as of January 1, 2022 are as follows:


	Operating Leases
Fiscal Year Ending	(In thousands)
October 1, 2022	$	6,779
September 30, 2023	7,543
September 28, 2024	7,143
September 27, 2025	6,115
October 3, 2026	4,987
Thereafter	47,397
Total future lease commitments	79,964
Less imputed interest	(23,162)
Present value of lease liabilities	$	56,802

8. NOTES PAYABLE

Long-term debt consists of the following:


	January 1, 2022		October 2, 2021
	(In thousands)

Promissory Note - Rustic Inn purchase	$	3,401	$	3,473
Promissory Note - Shuckers purchase	3,910		3,995
Promissory Note - Oyster House purchase	3,338		3,492
Promissory Note - JB's on the Beach purchase	4,500		4,750
Promissory Note - Sequoia renovation	2,057		2,171
Promissory Note - Revolving Facility	8,666		9,166
Promissory Note - Blue Moon Fish Company (see Note 3)	749		827
Paycheck Protection Program Loans	4,056		4,722
	30,677		32,596
Less: Current maturities	(6,756)		(6,973)
Less: Unamortized deferred financing costs	(102)		(114)
Long-term debt	$	23,819	$	25,509

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Notes Payable - Bank

On June 1, 2018, the Company refinanced (the "Refinancing") its then existing indebtedness with its current lender, Bank Hapoalim B.M. (“BHBM”), by entering into an amended and restated credit agreement (the “Revolving Facility”), which was to mature on May 19, 2022 (as extended). The Revolving Facility provided for total availability of the lesser of (i) $10,000,000 and (ii) $35,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM. On July 26, 2021, all outstanding borrowings under the Revolving Facility, in the amount of $9,666,000, were converted to a promissory note with quarterly principal payments of $500,000 commencing on September 1, 2021, with a balloon payment of $2,166,000 on June 1, 2025. Such note bears interest at LIBOR plus 3.5% per annum. We expect that the LIBOR rate will be discontinued at some point during 2022 and to work with BHBM to identify a suitable replacement rate and amend our debt agreements to reflect this new reference rate accordingly. We do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our financial position or materially affect our interest expense.

The Revolving Facility also requires, among other things, that the Company meet minimum quarterly tangible net worth amounts, maintain a minimum fixed charge coverage ratio and meet minimum annual net income amounts. The Revolving Facility contains customary representations, warranties and affirmative covenants as well as customary negative covenants, subject to negotiated exceptions on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions, disposal of assets and certain changes in ownership.

Borrowings under the Revolving Facility are secured by all tangible and intangible personal property (including accounts receivable, inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property, intellectual property and deposit accounts) and fixtures of the Company.

On June 12, 2020 and again on February 15, 2021, as a result of the impact of the COVID-19 pandemic on our business, BHBM agreed to modified financial covenants through fiscal Q2 2022.

In connection with the Refinancing, the Company also amended the principal amounts and payment terms of its outstanding term notes with BHBM as follows:

•Promissory Note – Rustic Inn purchase – The principal amount of $4,400,000, which is secured by a mortgage on the Rustic Inn real estate, is payable in 27 equal quarterly installments of $71,333, commencing on September 1, 2018, with a balloon payment of $2,474,000 on June 1, 2025 and bears interest at LIBOR plus 3.5% per annum.

•Promissory Note – Shuckers purchase – The principal amount of $5,100,000, which is secured by a mortgage on the Shuckers real estate, is payable in 27 equal quarterly installments of $85,000, commencing on September 1, 2018, with a balloon payment of $2,805,000 on June 1, 2025 and bears interest at LIBOR plus 3.5% per annum.

•Promissory Note – Oyster House purchase – In connection with the Refinancing, this note was amended and restated and separated into two notes. The first note, in the principal amount of $3,300,000, is secured by a mortgage on the Oyster House Gulf Shores real estate, is payable in 19 equal quarterly installments of $117,857, commencing on September 1, 2018, with a balloon payment of $1,060,716 on June 1, 2023 and bears interest at LIBOR plus 3.5% per annum. The second note, in the principal amount of $2,200,000, is secured by a mortgage on the Oyster House Spanish Fort real estate, is payable in 27 equal

SEC Form 10-Q filed by Ark Restaurants Corp.