NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
December 29, 2018
1.
|
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
The consolidated condensed balance sheet as
of September 29, 2018, which has been derived from audited financial statements included in the Company’s annual report on
Form 10-K for the year ended September 29, 2018 (“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.
The Company had a working capital deficiency
of $4,210,000 at December 29, 2018. We believe that our existing cash balances, current banking facilities and cash provided by
operations will be sufficient to meet our liquidity and capital spending requirements at least through February 12, 2020.
PRINCIPLES OF CONSOLIDATION — The consolidated
condensed interim 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 interim 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. Actual results could differ from those estimates. The results of
operations for the three months ended December 29, 2018 are not necessarily indicative of the results to be expected for any other
interim period or for the year ending September 28, 2019.
RECLASSIFICATIONS — Certain reclassifications
have been made to the prior year’s financial statements to enhance comparability with the current year’s presentation
of other income. As a result, comparative figures have been adjusted to conform to the current year’s presentation.
SEASONALITY — The Company has substantial
fixed costs that do not decline proportionally with sales. The first and second fiscal quarters, which include the winter months,
usually reflect lower customer traffic than in the third and fourth fiscal quarters. However, sales in the third and fourth fiscal
quarters can be adversely affected by inclement weather due to the significant amount of outdoor seating at the Company’s
restaurants.
FAIR VALUE OF FINANCIAL INSTRUMENTS —
The carrying amount of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value due
to the immediate or short-term maturity of these financial instruments. The fair values of notes receivable and payable are determined
using current applicable rates for similar instruments as of the balance sheet date and approximate the carrying value of such
debt instruments.
CASH AND CASH EQUIVALENTS — Cash and
cash equivalents include cash on hand, deposits with banks and highly liquid investments generally with original maturities of
three months or less. Outstanding checks in excess of account balances, typically vendor payments, payroll and other contractual
obligations disbursed after the last day of a reporting period are reported as a current liability in the accompanying consolidated
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 paid
off in a short period of time and amounts due from the hotel operators where the Company has a location, and are recorded when
the products or services have been delivered. The Company reviews the collectability of its receivables on an ongoing basis, and
provides for an allowance when it considers the entity unable to meet its obligation. The concentration of credit risk with respect
to accounts receivable is generally limited due to the short payment terms extended by the Company and the number of customers
comprising the Company’s customer base.
As of December 29, 2018, the Company had accounts
receivable balances due from one hotel operator totaling 48% of total accounts receivable. As of September 29, 2018, the Company
had accounts receivable balances due from two hotel operators totaling 47% of total accounts receivable.
For the 13-week periods ended December 29,
2018 and December 30, 2017, the Company made purchases from one vendor that accounted for 11% and 10%, respectively of total purchases.
As of December 29, 2018, all debt outstanding
is with one lender (see Note 6 – Notes Payable – Bank)
SEGMENT REPORTING — As of December 29,
2018, the Company owned and operated 20 restaurants and bars, 19 fast food concepts and catering operations, exclusively in the
United States, that have similar economic characteristics, nature of products and service, class of 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance to provide additional
clarification on specific topics (“ASC 606”). This ASU provides a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the
consideration it expects to receive in exchange for those goods or services. The Company adopted ASC 606 prospectively using the
modified retrospective method on September 30, 2018 and, based on our evaluation of our revenue streams, determined that there
was not a material impact as of the date of adoption between the new revenue standard and how we previously recognized revenue,
and therefore the adoption did not have a material impact on our consolidated condensed financial statements.
Revenues from restaurant operations are presented
net of discounts 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.
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 liability until such time. Revenues from
gift cards are deferred and recognized upon redemption. Deferrals are not reduced for potential non-use as we have a legal obligation
to remit the value of unredeemed gift cards to the relevant jurisdictions in which they are sold.
In January 2016, FASB issued ASU No. 2016-01,
Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance
requires equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to
be measured at fair value with changes in fair value recognized in net income. The amendments in this update also simplified the
impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify
impairment, eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate
the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and require
these entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. This guidance
also changes the presentation and disclosure requirements for financial instruments as well as clarifying the guidance related
to valuation allowance assessments when recognizing deferred tax assets resulting from unrealized losses on available-for-sale
debt securities. The Company adopted this guidance in the first quarter of fiscal 2019 with respect to its Investment in New Meadowlands
Racetrack (see Note 4). Such adoption did not have a material impact on our consolidated condensed financial statements.
In August 2016, FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments. This update provides clarification regarding how certain cash receipts
and cash payments are presented and classified in the statement of cash flows and addresses eight specific cash flow issues with
the objective of reducing the existing diversity in practice. The Company adopted this guidance in the first quarter of fiscal
2019. Such adoption did not have a material impact on our consolidated condensed financial statements.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes: Intra-Entity Transfers of Assets Other than Inventory. The amendments in this guidance address the income tax consequences
of intra-entity transfers of assets other than inventory. Current guidance prohibits the recognition of current and deferred income
taxes for an intra-entity asset transfer until the asset has been sold to an outside party. In addition, interpretations of this
guidance have developed in practice over the years for transfers of certain intangible and tangible assets. The amendments in the
update will require recognition of current and deferred income taxes resulting from an intra-entity transfer of an asset other
than inventory when the transfer occurs. The Company adopted this guidance in the first quarter of fiscal 2019. Such adoption did
not have a material impact on our consolidated condensed financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations: Clarifying the Definition of a Business. This update provides that when substantially all the fair value
of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not
a business. The Company adopted this guidance in the first quarter of fiscal 2019. Such adoption did not have a material impact
on our consolidated condensed financial statements.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
— In February 2016, the FASB issued ASU No. 2016-02, Leases. This update requires a lessee to recognize on the balance
sheet a liability to make lease payments and a corresponding right-of-use asset. The guidance also requires certain
qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. This
update is effective for the Company in the first quarter of fiscal 2020, which is when we plan to adopt these provisions. We
plan to elect the available practical expedients on adoption and we expect our balance sheet presentation to be materially
impacted upon adoption due to the recognition of right-of-use assets and lease liabilities for operating leases. We are
continuing to evaluate the effect this guidance will have on our consolidated condensed financial statements and related
disclosures.
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:
|
|
December 29,
2018
|
|
September 29,
2018
|
|
|
(in thousands)
|
Cash and cash equivalents
|
|
$
|
82
|
|
|
$
|
181
|
|
Accounts receivable
|
|
|
306
|
|
|
|
354
|
|
Inventories
|
|
|
27
|
|
|
|
19
|
|
Prepaid and refundable income taxes
|
|
|
241
|
|
|
|
241
|
|
Prepaid expenses and other current assets
|
|
|
51
|
|
|
|
51
|
|
Due from Ark Restaurants Corp. and affiliates (1)
|
|
|
365
|
|
|
|
338
|
|
Fixed assets - net
|
|
|
-
|
|
|
|
-
|
|
Other assets
|
|
|
82
|
|
|
|
82
|
|
Total assets
|
|
$
|
1,154
|
|
|
$
|
1,266
|
|
|
|
|
|
|
|
|
|
|
Accounts payable - trade
|
|
$
|
45
|
|
|
$
|
158
|
|
Accrued expenses and other current liabilities
|
|
|
398
|
|
|
|
348
|
|
Operating lease deferred credit
|
|
|
(23
|
)
|
|
|
(21
|
)
|
Total liabilities
|
|
|
420
|
|
|
|
485
|
|
Equity of variable interest entities
|
|
|
734
|
|
|
|
781
|
|
Total liabilities and equity
|
|
$
|
1,154
|
|
|
$
|
1,266
|
|
|
(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 DISPOSITIONS
|
As of December 29, 2018, the Company
determined that it would not be able to operate
Durgin-Park
profitably due to decreased traffic at the Faneuil Hall
Marketplace in Boston, MA, where it is located, and rising labor costs. As a result, included in the Statement of Operations
for the 13 weeks ended December 29, 2018 is a loss on closure in the amount of $1,067,000 consisting of: (i) impairment of
trademarks in the amount of $721,000, (ii) accelerated depreciation of fixed assets in the amount of $333,000, and (iii)
write-offs of prepaid expenses in the amount of $13,000. During the second quarter of 2019 the Company will incur additional
operating costs and related disposal costs upon the final closing of the restaurant on January 12, 2019.
4.
|
INVESTMENT IN 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 a purchase of an additional membership interest in Meadowlands Newmark, LLC resulting in a total ownership
of 11.6% of Meadowlands Newmark, LLC, and an effective ownership interest in NMR of 7.4%, subject to dilution. In 2015, the Company
invested an additional $222,000 in NMR and on February 7, 2017, the Company invested an additional $222,000 in NMR, both as a result
of capital calls, bringing its total investment to $5,108,000 with no change in ownership. As of September 29, 2018, this investment
was accounted for based on the cost method. As of December 29, 2018, the Company elected to account for this investment at cost,
less impairment, adjusted for subsequent observable price changes in accordance with ASU No. 2016-01. Such change did not affect
the value of our investment in NMR as no events or changes in circumstances occurred during the 13 weeks ended December 29, 2018
would indicate impairment and there are no observable prices for this investment. 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 December 29, 2018 and September 29, 2018, no amounts were due 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 $1,943,000 and $1,928,000 are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated condensed
balance sheets at December 29, 2018 and September 29, 2018, respectively.
5.
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued expenses and other current liabilities
consist of the following:
|
|
December 29,
2018
|
|
September 29,
2018
|
|
|
(In thousands)
|
|
|
|
Sales tax payable
|
|
$
|
1,179
|
|
|
$
|
820
|
|
Accrued wages and payroll related costs
|
|
|
2,281
|
|
|
|
3,226
|
|
Customer advance deposits
|
|
|
2,701
|
|
|
|
4,439
|
|
Accrued occupancy and other operating expenses
|
|
|
3,103
|
|
|
|
2,217
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,264
|
|
|
$
|
10,702
|
|
Long-term debt consists of the following:
|
|
December 29,
|
|
September 29,
|
|
|
2018
|
|
2018
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Promissory Note - Rustic Inn purchase
|
|
$
|
4,257
|
|
|
$
|
4,327
|
|
Promissory Note - Shuckers purchase
|
|
|
4,930
|
|
|
|
5,015
|
|
Promissory Note - Oyster House purchase
|
|
|
5,190
|
|
|
|
5,346
|
|
Credit Facility
|
|
|
6,568
|
|
|
|
6,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,945
|
|
|
|
21,256
|
|
Less: Current maturities
|
|
|
(1,243
|
)
|
|
|
(1,251
|
)
|
Less: Unamortized deferred financing costs
|
|
|
(137
|
)
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
19,565
|
|
|
$
|
19,860
|
|
On June 1, 2018, the Company refinanced its
then existing indebtedness with its current lender, Bank Hapoalim B.M. (“BHBM”), by entering into an amended and restated
credit agreement (the “New Revolving Facility”), which expires on May 31, 2021. The New Revolving Facility provides
for total availability of the lesser of (i) $10,000,000 and (ii) $25,000,000 less the then aggregate amount of all indebtedness
and obligations to BHBM. Borrowings under the New Revolving Facility are payable upon maturity of the New Revolving Facility with
interest payable monthly at LIBOR plus 3.5%, subject to adjustment based on certain ratios. As of December 29, 2018 and September
29, 2018, borrowings of $6,568,000, were outstanding under the Revolving Facility and had a weighted
average interest rate of 5.5% and 5.4%, respectively.
In connection with the refinancing, the Company
also amended the principal amounts and payment terms of its outstanding term notes with BHBM as follows:
|
•
|
Promissory
Note – Rustic Inn purchase
– On February 25, 2013, the Company issued
a promissory note to BHBM for $3,000,000. The note bore interest at LIBOR plus 3.5% per
annum, and was payable in 36 equal monthly installments of $83,333, commencing on March
25, 2013. On February 24, 2014, in connection with the acquisition of
The Rustic Inn
,
the Company borrowed an additional $6,000,000 from BHBM under the same terms and conditions
as the original loan which was consolidated with the remaining principal balance from
the original borrowing at that date. The new loan was payable in 60 equal monthly installments
of $134,722, which commenced on March 25, 2014. In connection with the above refinancing,
this note was amended and restated and increased by $2,783,333 of credit facility borrowings.
The new principal amount of $4,400,000, which is secured by a mortgage on
The Rustic
Inn
real estate, is payable in 27 equal quarterly installments of $71,333, commencing
on September 1, 2018, with a balloon payment of $2,419,990 on June 1, 2025 and bears
interest at LIBOR plus 3.5% per annum.
|
|
|
|
|
•
|
Promissory
Note – Shuckers purchase
– On October 22, 2015, in connection with the
acquisition of
Shuckers
, the Company issued a promissory note to BHBM for $5,000,000.
The note bore interest at LIBOR plus 3.5% per annum, and was payable in 60 equal monthly
installments of $83,333, commencing on November 22, 2015. In connection with the above
refinancing, this note was amended and restated and increased by $2,433,324 of credit
facility borrowings. The new principal amount of $5,100,000, which is secured by a mortgage
on the
Shuckers
real estate, is payable in 27 equal quarterly installments of
$85,000, commencing on September 1, 2018, with a balloon payment of $2,804,988 on June
1, 2025 and bears interest at LIBOR plus 3.5% per annum.
|
|
|
|
|
•
|
Promissory
Note – Oyster House purchase
– On November 30, 2016, in connection with
the acquisition of the
Oyster House
properties, the Company issued a promissory
note under the Revolving Facility to BHBM for $8,000,000. The note bore interest at LIBOR
plus 3.5% per annum, and was payable in 60 equal monthly installments of $133,273, commencing
on January 1, 2017. In connection with the above refinancing, this note was amended and
restated and separated into two notes. The first note, in the principal amount of $3,300,000,
is secured by a mortgage on the
Oyster House Gulf Shores
real estate, is payable
in 19 equal quarterly installments of $117,854, commencing on September 1, 2018, with
a balloon payment of $1,060,717 on June 1, 2023 and bears interest at LIBOR plus 3.5%
per annum. The second note, in the principal amount of $2,200,000, is secured by a mortgage
on the
Oyster House Spanish Fort
real estate, is payable in 27 equal quarterly
installments of $36,667, commencing on September 1, 2018, with a balloon payment of $1,209,995
on June 1, 2025 and bears interest at LIBOR plus 3.5% per annum.
|
Deferred financing costs incurred in connection
with the Revolving Facility in the amount of $125,000 are being amortized over the life of the agreements on a straight-line basis
and included in interest expense. Amortization expense of approximately $7,000 and $6,000 is included in interest expense for the
13 weeks ended December 29, 2018 and December 30, 2017, respectively.
Borrowings under the Revolving Facility, which
include all of the above promissory notes, are secured by all tangible and intangible personal property (including accounts receivable,
inventory, equipment, general intangibles, documents, chattel paper, instruments, letter-of-credit rights, investment property,
intellectual property and deposit accounts) and fixtures of the Company.
The loan agreements provide, among other
things, that the Company meet minimum quarterly tangible net worth amounts, as defined, maintain a fixed charge coverage
ratio of not less than 1.1:1 on a latest 12 months basis and minimum annual net income amounts, and contain customary
representations, warranties and affirmative covenants. The agreements also contain customary negative covenants, subject to
negotiated exceptions, on liens, relating to other indebtedness, capital expenditures, liens, affiliate transactions,
disposal of assets and certain changes in ownership. The Company was in compliance with all of its financial covenants under
the Revolving Facility as of December 29, 2018.
|
7.
|
COMMITMENTS AND CONTINGENCIES
|
Leases
— The Company leases
several restaurants, bar facilities, and administrative headquarters through its subsidiaries under terms expiring at various dates
through 2032. 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.
Legal
Proceedings
—
In the ordinary course of its business, the Company is a party to various lawsuits arising from accidents at its restaurants and
worker’s compensation claims, which are generally handled by the Company’s insurance carriers. The employment by the
Company of management personnel, waiters, waitresses and kitchen staff at a number of different restaurants has resulted, from
time to time, in litigation alleging violation by the Company of employment discrimination laws. Management believes, based in
part on the advice of counsel, that the ultimate resolution of these matters will not have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash flows.
The Company has options outstanding under two
stock option plans, the 2010 Stock Option Plan (the “2010 Plan”) and the 2016 Stock Option Plan (the “2016 Plan”).
Options granted under both plans are exercisable at prices at least equal to the fair market value of such stock on the dates the
options were granted and expire ten years after the date of grant.
No options or performance-based awards were
granted during the 13 week period ended December 29, 2018.
The Company also maintains a Section 162(m)
Cash Bonus Plan. Under the Section 162(m) Cash Bonus Plan, compensation paid in excess of $1,000,000 to any employee who is the
chief executive officer, or one of the three highest paid executive officers on the last day of that tax year (other than the chief
executive officer or the chief financial officer) will meet certain “performance-based” requirements of Section 162(m)
and the related IRS regulations in order for it to be tax deductible.
A summary of stock option activity is presented
below:
|
|
2019
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Term
|
|
Aggregate
Intrinsic Value
|
Outstanding, beginning of period
|
|
|
378,750
|
|
|
$
|
18.46
|
|
|
4.8 Years
|
|
|
|
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,500
|
)
|
|
$
|
14.40
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and expected to vest, end of period
|
|
|
372,250
|
|
|
$
|
18.53
|
|
|
4.5 Years
|
|
$
|
763,600
|
|
Exercisable, end of period
|
|
|
359,750
|
|
|
$
|
18.42
|
|
|
4.4 Years
|
|
$
|
763,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future grant
|
|
|
475,000
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost charged to operations for
the 13 weeks ended December 29, 2018 and December 30, 2017 for share-based compensation programs was approximately $12,000 and
$0, respectively. The compensation cost recognized is classified as a general and administrative expense in the consolidated condensed
statements of operations.
As of December 29, 2018, there was approximately
$35,000 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a period of
nine months.
The Company’s provision for income taxes
consists of federal, state and local taxes in amounts necessary to align the Company’s year-to-date provision for income
taxes with the effective tax rate that the Company expects to achieve for the full year. Each quarter, the Company updates its
estimate of the annual effective tax rate and records cumulative adjustments as deemed necessary.
The income tax provisions for the 13 week periods
ended December 29, 2018 and December 30, 2017 reflect effective tax rates of approximately 287.5% and (162.5)%, respectively. The
Company’s effective tax rate for the 13 weeks ended December 29, 2018 differed than the statutory rate of 21% 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 effective rate for the 13 weeks ended December 30, 2017 differed from the blended statutory
rate of 24% as a result of 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 one-time remeasurement of the Company’s deferred tax assets and liabilities
for reduced federal tax rate enacted as part of the Tax Cuts and Jobs Act. 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.
The Company’s overall effective tax rate
in the future will be affected by factors such as the utilization of state and local net operating loss carryforwards, the generation
of FICA tax credits and the mix of earnings by state taxing jurisdictions as Nevada does not impose a state income tax, as compared
to the other major state and local jurisdictions in which the Company has operations.
|
10.
|
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.
For the 13 week period ended
December 29, 2018, the dilutive effect of options to purchase 35,000 shares of common stock at an exercise price of $12.04 per
share, options to purchase 135,250 shares of common stock at an exercise price of $14.40 per share, options to purchase 5,000 shares
of common stock at an exercise price of $20.26 per share, options to purchase 177,000 shares of common stock at an exercise price
of $22.50 per share and options to purchase 20,000 shares of common stock at an exercise price of $22.30 per share were not included
in diluted earnings per share as their impact would be anti-dilutive.
For the 13 week period ended
December 30, 2017, options to purchase 64,000 shares of common stock at an exercise price of $12.04 per share, options to purchase
156,300 shares of common stock at an exercise price of $14.40 per share and options to purchase 194,000 shares of common stock
at an exercise price of $22.50 per share were included in diluted earnings per share.
On December 3, 2018, the
Board of Directors declared a quarterly dividend of $0.25 per share on the Company’s common stock to be paid on January 3,
2019 to shareholders of record at the close of business on December 18, 2018. The Company intends to continue to pay such quarterly
cash dividends for the foreseeable future; however, the payment of future dividends is at the discretion of the Company’s
Board of Directors and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation
and other relevant factors.