SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 30, 201729, 2018

Commission file number 1-09453

ARK RESTAURANTS CORP.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:  (212) 206-8800  

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 (the “Exchange Act”) 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.

Yesx    Noo

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yesx    Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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.

Yeso    Noo

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso    Nox

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

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.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter or subject area. In addition to the items specifically discussed above, our business, results of operations and financial position and your investment in our common stock are subject to the risks and uncertainties described in “Item 1A Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 (“Form 10-K”) as may be updated by the information contained under the caption “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q.

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-K, 10-Q, and 8-K and Schedule 14A.

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

Part I. Financial Information

Item 1. Consolidated Condensed Financial Statements

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(In Thousands, Except Per Share Amounts)

See notes to consolidated condensed financial statements.

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)

FOR THE 13 WEEKS ENDED DECEMBER 30, 2017 AND DECEMBER 31, 2016OPERATIONS (unaudited)

(In Thousands, Except Per Share Amounts)

See notes to consolidated condensed financial statements.

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY (Unaudited)(unaudited)

FOR THE 13 WEEKS ENDED DECEMBER 30, 201729, 2018 AND DECEMBER 31, 201630, 2017

(In Thousands, Except Per Share Amounts)

See notes to consolidated condensed financial statements.

ARK RESTAURANTS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE 13 WEEKS ENDED DECEMBER 30, 2016 AND DECEMBER 31, 2016

(In Thousands)

See notes to consolidated condensed financial statements.

ARK RESTAURANTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

December 30, 201729, 2018

(Unaudited)                                               

The consolidated condensed balance sheet as of September 30, 2017,29, 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 30, 201729, 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 $18,197,000$4,210,000 at December 30, 2017 primarily as a result of our purchase of The Oyster House properties in November 2016 and costs associated with the renovation of our Sequoia property in Washington, DC.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 13, 2019. In addition,12, 2020.

PRINCIPLES OF CONSOLIDATION — The consolidated condensed interim financial statements include the Company isaccounts 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 process of negotiating an increaseconsolidated condensed interim financial statements are certain variable interest entities (“VIEs”). All significant intercompany balances and transactions have been eliminated in the amounts available under its existing credit facility and refinancing outstanding borrowings over longer repayment periods. Such refinancing is expected to be completed in Q2 2018.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 30, 201729, 2018 are not necessarily indicative of the results to be expected for any other interim period or for the year ending September 29, 2018.

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.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 30, 2017 and29, 2018, the Company had accounts receivable balances due from one hotel operator totaling 48% of total accounts receivable. As of September 30, 2017,29, 2018, the Company had accounts receivable balances due from two hotel operators totaling 48% and 39%, respectively,47% of total accounts receivable.

For the 13-week periodperiods 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. For the 13-week period

As of December 31, 2016, the Company did not make purchases from any29, 2018, all debt outstanding is with one vendor that accounted for 10% or greater of total purchases.lender (see Note 6 – Notes Payable – Bank)

SEGMENT REPORTING — As of December 30, 2017,29, 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.

NEWRECENTLY ADOPTED ACCOUNTING STANDARDS NOT YET ADOPTEDPRINCIPLES — In May 2014, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. TheCustomers, 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 requires additionalchanges the presentation and disclosure aboutrequirements for financial instruments as well as clarifying the nature, amount, timing and uncertainty of revenue and cash flows arisingguidance related to valuation allowance assessments when recognizing deferred tax assets resulting from customer contracts. This update is effective for theunrealized losses on available-for-sale debt securities. The Company adopted this guidance in the first quarter of fiscal 2019 which is when we planwith respect to adopt these provisions.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 permitsprovides clarification regarding how certain cash receipts and cash payments are presented and classified in the usestatement of eithercash flows and addresses eight specific cash flow issues with the retrospective or cumulative effect transition method, however we have not yet selected a transition method. Upon initial evaluation, we do not believeobjective of reducing the existing diversity in practice. The Company adopted this guidance willin 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 revenue from company-owned restaurants, which is our primary sourcecurrent and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. In addition, interpretations of revenue. We are continuing to evaluate the effect this guidance have developed in practice over the years for transfers of certain intangible and tangible assets. The amendments in the update will have onrequire recognition of current and deferred income taxes resulting from an intra-entity transfer of an asset other less significant revenue sources, including catering revenues.than inventory when the transfer occurs. The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken byadopted 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 which may, in conjunction withissued ASU No. 2017-01, Business Combinations: Clarifying the completionDefinition of a Business. This update provides that when substantially all the fair value of the Company’s overall assessmentassets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the newset is not a business. The Company adopted this guidance in the first quarter of fiscal 2019. Such adoption did not have a material impact the Company’s current conclusions.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 Statementsconsolidated condensed financial statements and related disclosures.

In January 2017, the FASB issued guidance clarifying the definition of a business. The 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 new rules will be effective for the Company in the first quarter of 2019. The Company is currently evaluating the potential impact adoption of this guidance on its Consolidated Condensed Financial Statements.

In January 2017, the FASB guidance simplifying the test for goodwill impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2021. The Company is currently evaluating the potential impact adoption of this guidance on its Consolidated Condensed Financial Statements.

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:

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.

On November 30, 2016, the Company, through newly formed, wholly-owned subsidiaries, acquired the assets of the Original Oyster House, Inc., a restaurant and bar located in the City of Gulf Shores, Baldwin County, Alabama and the related real estate and an adjacent retail shopping plaza and the Original Oyster House II, Inc., a restaurant and bar located in the City of Spanish Fort, Baldwin County, Alabama and the related real estate. The total purchase price was for $10,750,000 plus inventory of approximately $293,000. The acquisition is accounted for as a business combination and was financed with a bank loan from the Company’s existing lender in the amount of $8,000,000 and cash from operations. The fair values of the assets acquired were allocated as follows (amounts in thousands):

The Consolidated Condensed Statements of Income for the 13-weeks ended December 30, 2017 include revenues and losses of approximately $2,388,000 and ($125,000), respectively, related to theOyster Houseproperties. The unaudited pro forma financial information set forth below is based upon the Company’s historical Consolidated Condensed Statements of Income for the 13-weeks ended December 31, 2016 and includes the results of operations for theOyster Houseproperties for the period prior to acquisition. The unaudited pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the acquisition of theOyster Houseproperties occurred on the dates indicated, nor does it purport to represent the results of operations for future periods.

Lease Expirations – TheAs of December 29, 2018, the Company was advised by the landlorddetermined that it would havenot be able to vacateoperateThe Grill at Two TreesDurgin-Park propertyprofitably due to decreased traffic at the Foxwoods ResortFaneuil Hall Marketplace in Boston, MA, where it is located, and Casinorising labor costs. As a result, included in Ledyard, CT,which hadthe Statement of Operations for the 13 weeks ended December 29, 2018 is a no rent lease. Theloss on closure of this property occurred on January 1, 2017 and did not result in a material charge.

Other – On November 18, 2016, Ark Jupiter RI, LLC (“Ark Jupiter”), a wholly-owned subsidiary of the Company, entered into a ROFR Purchase and Sale Agreement (the “ROFR”) with SCFRC-HWG, LLC, the landlord (the “Seller”) to purchase the land and building in which the Company operates itsRustic Innlocation in Jupiter, Florida. The Seller had entered into a Purchase and Sale Agreement with a third party to sell the premises; however, Ark Jupiter’s lease provided the Company with a right of first refusal to purchase the property. Ark Jupiter exercised the ROFR on October 4, 2016 and made a ten (10%) percent deposit on the purchase price of approximately Five Million Two Hundred Thousand Dollars ($5,200,000). Concurrent with the execution of the ROFR, Ark Jupiter entered into a Purchase and Sale Agreement with 1065 A1A, LLC to sell this same property for Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000). In connection with the sale, Ark Jupiter and 1065 A1A, LLC entered into a temporary lease and sub-lease arrangement which expired on July 18, 2017. The Company vacated the space in June 2017. In connection with these transactions the Company recognized a gain in the amount of $1,637,000 during the 13-weeks ended December 31, 2016.

The Company transferred its lease and the related assets$1,067,000 consisting of: (i) impairment ofCanyon Road located in New York, NY to a former employee. In connection with this transfer, the Company recognized an impairment loss included in depreciation and amortization expense trademarks in the amount of $75,000 for$721,000, (ii) accelerated depreciation of fixed assets in the 13-weeks ended December 31, 2016.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.

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. ThisAs of September 29, 2018, this investment has beenwas 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 98%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. At December 30, 2017, it was determined that AM VIE is a variable interest entity. However,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 aany receivable from AM VIE’s primary beneficiary (NMR, a related party) which aggregated approximately $5,000 and $9,000 at. As of December 30, 201729, 2018 and September 30, 2017, respectively, and are included in Prepaid Expenses and Other Current Assets in the Consolidated Condensed Balance Sheets.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 $1,885,000$1,943,000 and $1,871,000,$1,928,000 are included in Investment In and Receivable From New Meadowlands Racetrack in the Consolidated Balance Sheetsconsolidated condensed balance sheets at December 30, 201729, 2018 and September 30, 2017,29, 2018, respectively.

In accordance with the cost method, our initial investment is recorded at cost and we record dividend income when applicable, if dividends are declared. We review our Investment in NMR each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on its fair value, such as the defeat of the referendum for casino gaming in Northern New Jersey in November 2016. State law prohibits the issue from being put on the ballot before voters for the following two years. As a result, we performed an assessment of the recoverability of our indirect Investment in NMR as of September 30, 2017 which included estimates requiring significant management judgment, include inherent uncertainties and are often interdependent; therefore, they do not change in isolation. Factors that management estimated include, among others, the probability of gambling being approved in Northern NJ which is the most heavily weighted assumption and NMR obtaining a license to operate a casino, revenue levels, cost of capital, marketing spending, tax rates and capital spending.

In performing this assessment, we estimated the fair value of our Investment in NMR using our best estimate of these assumptions which we believe would be consistent with what a hypothetical marketplace participant would use. The variability of these factors depends on a number of conditions, including uncertainty about future events and our inability as a minority shareholder to control certain outcomes and thus our accounting estimates may change from period to period. If other assumptions and estimates had been used when these tests were performed, impairment charges could have resulted. As a result of the above, no impairment was deemed necessary as of December 30, 2017.

Accrued expenses and other current liabilities consist of the following:

Long-term debt consists of the following:

On February 25, 2013,June 1, 2018, the Company issued a promissory note torefinanced its then existing indebtedness with its current lender, Bank Hapoalim B.M. (the “BHBM”(“BHBM”) for $3,000,000. The note bore interest at LIBOR plus 3.5% per annum,, by entering into an amended 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 ofThe 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 is payable in 60 equal monthly installments of $134,722, which commenced on March 25, 2014.

On October 22, 2015, in connection with the acquisition ofShuckers, the Company issued a promissory note to BHBM for $5,000,000. The note bears interest at LIBOR plus 3.5% per annum, and is payable in 60 equal monthly installments of $83,333, commencing on November 22, 2015.

Also on October 22, 2015, the Company also entered into arestated credit agreement (the “Revolving“New Revolving Facility”) with BHBM, which expires on October 21, 2019 andMay 31, 2021. The New Revolving Facility provides for total availability of the lesser of (i) $10,000,000 and (ii) $20,000,000$25,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM. Borrowings under the New Revolving Facility are evidenced by a promissory note (the “Revolving Note”) in favorpayable upon maturity of BHBM and will be payable over five yearsthe New Revolving Facility with interest payable monthly at an annual rate equal to LIBOR plus 3.5% per year. On December 12, 2017, the Company amended its Revolving Facility, subject to increase the total availability to be the lesser of (i) $12,000,000 and (ii) $22,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM.adjustment based on certain ratios. As of December 30, 201729, 2018 and September 30, 2017,29, 2018, borrowings of $8,498,000 and $6,198,000$6,568,000, were outstanding under the Revolving Facility and had a weighted average interest rate of 5.0%5.5% and 4.7%5.4%, respectively.

On November 30, 2016, inIn connection with the acquisition of theOyster Houseproperties,refinancing, the Company issued a promissory note underalso amended the Revolving Facility toprincipal amounts and payment terms of its outstanding term notes with BHBM for $8,000,000. The note bears interest at LIBOR plus 3.5% per annum, and is payable in 60 equal monthly installments of $133,273, commencing on January 1, 2017.as follows:

Deferred financing costs incurred in connection with the Revolving Facility in the amount of $130,585$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 $6,000$7,000 and $11,000$6,000 is included in interest expense for the 13-weeks13 weeks ended December 30, 201729, 2018 and December 31, 2016,30, 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 30, 2017 except for the fixed charge coverage ratio covenant. On February 9, 2018, we were issued a waiver for this covenant as of December 30, 2017.29, 2018.

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.

On January 12, 2016, the Company entered into an Amended and Restated Lease for itsSequoiaproperty in Washington D.C. extending the lease for 15 years through November 30, 2032 with one additional five-year option. Annual rent under the new lease is approximately $1,200,000 increasing annually through expiration. Under the terms of the agreement, the property was closed January 1, 2017 for renovation and reconcepting which cost approximately $11,000,000. In connection with this closure, the Company recognized an impairment loss related to fixed asset disposals in the amount of $283,000, which is included in Depreciation and Amortization Expense for the 13-weeks ended December 31, 2016. The restaurant re-opened in June 2017.

LegalProceedings— 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.

Share Repurchase Plan — On July 5, 2016, the Board of Directors authorized a share repurchase program authorizing management to purchase up to 500,000 shares of the Company’s common stock during the next twelve months. Any repurchase under the program will be effected in compliance with Rule 10b-18 under the Securities Exchange Act of 1934 “Purchases of Certain Equity Securities by the Issuer and Others”, funded using the Company’s working capital and be based on management’s evaluation of market conditions and other factors. No repurchases were made during the 13-weeks ended December 30, 2017 and December 31, 2016.

The Company has options outstanding under two stock option plans, the 2004 Stock Option Plan (the “2004 Plan”) and the 2010 Stock Option Plan (the “2010 Plan”), which was approved by shareholders in and the second quarter of 2010. Effective with this approval, the Company terminated the 2004 Plan. This action terminated the 400 authorized but unissued options under the 20042016 Stock Option Plan but it did not affect any of the options previously issued under the 2004 Plan.(the “2016 Plan”). Options granted under the 2004 Planboth plans 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 ten years after the date of grant. Options granted under the 2010 Plan are exercisable at prices at least equal to the fair market value of such stock on the dates the options were granted. The optionsand expire ten years after the date of grant.

On April 5, 2016,No options or performance-based awards were granted during the shareholders of the13 week period ended December 29, 2018.

The Company approved the 2016 Stock Option Plan and thealso maintains a Section 162(m) Cash Bonus Plan. Under the 2016 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 ten years after the date of grant. 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.

During the quarter ended December 31, 2016, options to purchase 90,000 shares of common stock at an exercise price of $32.15 per share expired unexercised.

No options or performance-based awards were granted during the 13-week period ended December 30, 2017.

A summary of stock option activity is presented below:

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.

NoAs of December 29, 2018, there was approximately $35,000 of unrecognized compensation costs are included in the Consolidated Condensed Statementscost related to unvested stock options, which is expected to be recognized over a period of Income as all has been previously recognizednine months.

On December 22, 2017,The Company’s provision for income taxes consists of federal, state and local taxes in amounts necessary to align the Tax Cuts and Jobs Acts (“TCJA”) was enacted into law. The new legislation contains several key tax provisions includingCompany’s year-to-date provision for income taxes with the reduction of the corporate incomeeffective tax rate that the Company expects to 21% effective January 1, 2018, as well as a variety of other changes including limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. As such,achieve for the 13-weeks ended December 30, 2017,full year. Each quarter, the Company revisedupdates its estimated annual effective rate to reflect the change in the federal statutory rate from 34% to 21%. The rate change is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for the year is 24%.

The SEC issued SAB 118, which provides guidance on accounting for the tax effects of TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

We have recorded a provisional increase to our deferred tax assets and liabilities to reflect the new corporate tax rate. As a result, income tax expense reported for the first three months was adjusted to reflect the effects of the change in the tax law and resulted in a discrete income tax benefit of approximately $1.2 million during the first quarter. While we were able to make a reasonable estimate of the impact of the reduction in the corporateannual effective tax rate it may be affected by other analyses related to the TCJA.and records cumulative adjustments as deemed necessary.

The income tax provisions for the 13-week13 week periods ended December 30, 201729, 2018 and December 31, 201630, 2017 reflect effective tax rates of approximately 287.5% and (162.5)% and 30%, respectively. The Company expects itsCompany’s effective tax rate for its current fiscal year to be lowerthe 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 the non-controlling interests of the VIEs that is not taxable to the Company and the one-time remeasurement of ourthe Company’s deferred tax assets and liabilities for reduced federal tax rate enacted as part of the TCJA.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 jurisdictionjurisdictions 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.

During the 13-weeks ended December 31, 2016, certain equity compensation awards expired unexercised. As such, the Company reversed the related deferred tax asset in the amount of approximately $397,000 as a charge to Additional Paid-in Capital as there was a sufficient pool of windfall tax benefit available.

Net incomeBasic earnings per share is calculated oncomputed by dividing net income attributable to Ark Restaurants Corp. by the basis of the weighted averageweighted-average number of common shares outstanding during each period plus, for the period. Our diluted net incomeearnings per share is computed similarly to basic earnings per share, except that it reflects the additional dilutive effect of potential common stock. Potential commonshares issuable upon exercise of stock options, using the treasury stock method consists ofin periods in which they have a dilutive stock options.effect.

For the 13-week13 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.

For the 13-week period ended December 31, 2016, options to purchase 66,000 shares of common stock at an exercise price of $12.04 per share and options to purchase 160,800 shares of common stock at an exercise price of $14.40 per share were included in diluted earnings per share. Options to purchase 201,808 shares of common stock at an exercise price of $22.50 per share were not included in diluted earnings per share as their impact would be anti-dilutive.

On December 5, 2017,3, 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, 20182019 to shareholders of record at the close of business on December 19, 2017.18, 2018. The Company intends to continue to pay such quarterly cash dividends for the foreseeable future,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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

As of December 30, 2017,29, 2018, the Company owned and operated 20 restaurants and bars, 19 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods. The Company believes it meets the criteria for aggregating its operating segments into a single reporting segment in accordance with applicable accounting guidance. The Consolidated Condensed StatementsAs of IncomeDecember 29, 2018, the Company determined that it would not be able to operateDurgin-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-weeks13 weeks ended December 30, 201729, 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 December 31, 2016 include revenues and losses(iii) write-offs of approximately $2,388,000 and ($125,000) and $707,000 and ($52,000), respectively, related toprepaid expenses in theOyster House properties, which were acquired amount of $13,000. The restaurant was closed on November 30, 2016.January 12, 2019.

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 December 30, 201729, 2018 and December 31, 201630, 2017 each included 13 weeks.

Seasonality

The Company has substantial fixed costs that do not decline proportionately with sales. At our properties located in the northeast, the first and second fiscal quarters, which include the winter months, usually reflect lower customer traffic than in the third and fourth fiscal quarters. However, sales in the third and fourth fiscal quarters can be adversely affected by inclement weather due to the significant amount of outdoor seating at the Company’s restaurants.

Results of Operations

The Company’s operating income for the 13 weeks ended December 30, 201729, 2018 was $882,000$305,000, which included a loss of $1,067,000 relating to the closure ofDurgin-Park located in Boston, MA. Excluding this loss, operating income for the 13 weeks ended December 29, 2018 was $1,372,000 as compared to $2,970,000$882,000 for the 13 weeks ended December 30, 2016.2017. This decreaseincrease resulted primarily from the recognition of a gain in the prior period in connection with the sale of the real estate underlyingstrong catering revenues at our Rustic Inn, Jupiter, FL propertyNew York properties combined with increasescontinued strong performance at our properties located at the NYNY Casino Hotel in costs and expenses as discussed below.Las Vegas partially offset by increased labor costs.

The following table summarizes the significant components of the Company’s operating results for the 13-week13 week periods ended December 30, 201729, 2018 and December 31, 2016, respectively:30, 2017:

Revenues

During the Company’s 13-week13 week period ended December 30, 2017,29, 2018, revenues increased 2.4%3.1% as compared to revenues in the 13-week13 week period ended December 31, 2016.30, 2017. This increase resulted primarily from the same-store sales impacts discussed below.

Food and Beverage Same-Store Sales

On a Company-wide basis, same-store sales increased 2.2%2.9% during the first fiscal quarter of 20182019 as compared to the same period last year as follows:

Same-store sales in Las Vegas increased 3.1%7.0% primarily as a result of increased traffic near the properties where we operate our restaurants in connection with the opening of the T-Mobile Arena nearby. Same-store sales in New York increased 1.2%,2.4% primarily as a result of good weather conditions during the months in which our properties with outdoor seating areas are open.strong catering revenues. Same-store sales in Washington, DC increased 8.3%decreased 7.3% due to decreased traffic at ourThunder Grill property as a result of a major tenant vacating the re-opening ofSequoia DC in June 2017 which was preparing to close for renovation onJanuary 4, 2017.adjacent space and weaker than expected catering revenues. Same-store sales in Atlantic City decreased 4.0%, primarilyincreased 4.1% as a result of an overall increase in traffic in Atlantic City due to decreased traffic at propertiesthe legalization of sports gambling in which we operate our restaurants.New Jersey. Same-store sales in Boston decreased 13.2%,Alabama increased 2.3% primarily as a result of decreased traffic at Faneuil Hall Marketplace where our property is located. Same-store salesbetter weather conditions in Alabama increased 10.0%, which represent only December sales, primarily as a result of increased traffic at our properties.the current period. Same-store sales in Florida increased 3.2%2.2% as a result of the completion of the road construction project started in the second quarter of fiscal 2016 by the local municipality nearThe Rustic Inn in Dania Beach, FL. Other food and beverage sales consist of sales related to new restaurants opened or acquired during the applicable period, (e.g. the Oyster Houseproperties)and sales related to properties that were closed due to lease expiration and other closures.closures and other fees.

Costs and Expenses

Costs and expenses for the 13-weeks13 weeks ended December 30, 201729, 2018 and December 31, 201630, 2017 were as follows (in thousands):

The increases in foodFood and beverage costs as a percentage of total revenues for the 13-weeks13 weeks ended December 30, 2017 compared to29, 2018 were consistent with the same periodsperiod of last year are primarily the result of higher food costs as a percentage of sales associated withThe Oyster House properties, which were acquired on November 30, 2016, seafood restaurants which, consistent with the industry, operate at a higher food cost structure.expected.

Payroll expenses as a percentage of total revenues for the 13-weeks13 weeks ended December 30, 2017 increased as compared to29, 2018 were consistent with the same period of last year primarily as a result of minimum wage increases associated with changes to labor laws.laws partially offset by a better mix of catering versus a la carte business at our larger properties.

Occupancy expenses as a percentage of total revenues for the 13-weeks13 weeks ended December 30, 2017 increased29, 2018 decreased slightly as compared to the same period of last year primarily as a result of increasedhigher sales at properties where rents are paid based on a percentage of sales.relatively fixed or where the Company owns the premises at which the property operates.

Other operating costs and expenses as a percentage of total revenues for the 13-weeks13 weeks ended December 30, 2017 increased29, 2018 decreased as compared to the same periodperiods of last year as a result fixedof increased sales as many of these costs associated with properties where sales declined.are fixed.

General and administrative expenses (which relate solely to the corporate office in New York City) as a percentage of total revenues for the 13-weeks13 weeks ended December 30, 2017 decreased slightly29, 2018 increased as compared to the same period of last year primarily as a result of transaction costs in the prior period incurred in connection with the purchase of theOyster Houseproperties.annual wage increases and higher professional fees.

Depreciation and amortization expense for the 13-weeks13 weeks ended December 30, 201729, 2018 decreased as compared to the same period of last year primarily as a result of additional depreciation in the amount of $358,000 related to asset write-offs atSequoia(which was undergoing a major renovation) andCanyon Road(whose lease was transferred to an unrelated party)assets becoming fully depreciated in the prior period.period partially offset by depreciation on the improvements made at theSequoiaproperty which were placed in service in the fourth fiscal quarter of 2017.

Income Taxes

On December 22, 2017,The Company’s provision for income taxes consists of federal, state and local taxes in amounts necessary to align the Tax Cuts and Jobs Acts (“TCJA”) was enacted into law. The new legislation contains several key tax provisions includingCompany’s year-to-date provision for income taxes with the reduction of the corporate incomeeffective tax rate that the Company expects to 21% effective January 1, 2018, as well as a variety of other changes including limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. As such,achieve for the full year. Each quarter, ended December 30, 2017, the Company revisedupdates its estimated annual effective rate to reflect the change in the federal statutory rate from 34% to 21%. The rate change is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for the year is 24%.

The SEC issued SAB 118, which provides guidance on accounting for the tax effects of TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but is able to determine a reasonable estimate, it must record a provisional estimate in the financial statement.

We have recorded a provisional increase to our deferred tax assets and liabilities to reflect the new corporate tax rate. As a result, income tax expense reported for the first three months was adjusted to reflect the effects of the change in the tax law and resulted in a discrete income tax benefit of $1.2 million during the first quarter. While we were able to make a reasonable estimate of the impact of the reduction in the corporateannual effective tax rate it may be affected by other analyses related to the TCJA.and records cumulative adjustments as deemed necessary.

The income tax provisions for the 13-week13 week periods ended December 30, 201729, 2018 and December 31, 201630, 2017 reflect effective tax rates of approximately 287.5% and (162.5)% and 30%, respectively. The Company expects itsCompany’s effective tax rate for its current fiscal year to be lowerthe 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 the non-controlling interests of the VIEs that is not taxable to the Company and the one-time remeasurement of ourthe Company’s deferred tax assets and liabilities for reduced federal tax rate enacted as part of the TCJA.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 jurisdictionjurisdictions 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.

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 acquisitions.large remodeling projects. We utilize cash generated from operations to fund the cost of developing and opening new restaurants and smaller remodeling projects of existing restaurants we own.

Net cash provided by operating activities for the 13-weeks13 weeks ended December 30, 201729, 2018 decreased to $1,165,000$840,000 as compared to $1,824,000$1,165,000 provided by operations in the same period of last year. This decrease was attributable to changes in net working capital

primarily related to accounts receivable, prepaid, refundable and accrued income taxes and accounts payable and accrued expenses.

Net cash used in investing activities for the 13-week period13 weeks ended December 29, 2018 and December 30, 2017 waswere $619,000 and $2,516,000, respectively and resulted primarily from purchases of fixed assets at existing restaurants.

Net cash used in investing activities for the 13-week period ended December 31, 2016 was $2,260,000 and resulted primarily from purchases of fixed assets at existing restaurants and the cash portion of the purchase of the Oyster House properties in the amount of $3,043,000, partially offset by the net proceeds in the amount of $2,474,000 from the sale of The Rustic Inn in Jupiter, Florida.

Net cash provided by (used in) financing activities for the 13-week13 week periods ended December 29, 2018 and December 30, 2017 of ($2,050,000) and December 31, 2016 of $98,000, and ($2,141,000), respectively, resulted primarily from the payment of dividends, principal payments on notes payable and distributions to non-controlling interests, offset by borrowings under the credit facility.

The Company had a working capital deficiency of $18,197,000$4,210,000 at December 30, 201729, 2018 as compared with a deficiency of $16,072,000$4,628,000 at September 30, 2017. This increase resulted primarily from costs associated with the renovation of ourSequoiaproperty in Washington, DC.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 13, 2019. In addition, the Company is in the process of negotiating an increase in the amounts available under the existing credit facility and refinancing outstanding borrowings over longer repayment periods. Such refinancing is expected to be completed in the second fiscal quarter of 2018.12, 2020.

On December 5, 2017,3, 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, 20182019 to shareholders of record at the close of business on December 19, 2017.18, 2018. The Company intends to continue to pay such quarterly cash dividends for the foreseeable future,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.

The Company was in compliance with all of its financial covenants under the Revolving Facility as of December 30, 2017 except for the fixed charge coverage ratio covenant. On February 9, 2018, we were issued a waiver for this covenant as of December 30, 2017.

Recent Restaurant Expansion

On November 30, 2016, the Company, through newly formed, wholly-owned subsidiaries, acquired the assets of the Original Oyster House, Inc., a restaurant and bar located in the City of Gulf Shores, Baldwin County, Alabama and the related real estate and an adjacent retail shopping plaza and the Original Oyster House II, Inc., a restaurant and bar located in the City of Spanish Fort, Baldwin County, Alabama and the related real estate. The total purchase price was for $10,750,000 plus inventory of approximately $293,000. The acquisition is accounted for as a business combination and was financed with a bank loan from the Company’s existing lender in the amount of $8,000,000 and cash from operations.29, 2018.

Recent Restaurant Dispositions

Lease Expirations – TheAs of December 29, 2018, the Company was advised by the landlorddetermined that it would havenot be able to vacateoperateThe Grill at Two TreesDurgin-Park propertyprofitably due to decreased traffic at the Foxwoods ResortFaneuil Hall Marketplace in Boston, MA, where it is located, and Casinorising labor costs. As a result, included in Ledyard, CT,which hadthe Statement of Operations for the 13 weeks ended December 29, 2018 is a no rent lease. Theloss on closure of this property occurred on January 1, 2017 and did not result in a material charge.

Other– On November 18, 2016, Ark Jupiter RI, LLC (“Ark Jupiter”), a wholly-owned subsidiary of the Company, entered into a ROFR Purchase and Sale Agreement (the “ROFR”) with SCFRC-HWG, LLC, the landlord (the “Seller”) to purchase the land and building in which the Company operates itsRustic Inn location in Jupiter, Florida. The Seller had entered into a Purchase and Sale Agreement with a third party to sell the premises; however, Ark Jupiter’s lease provided the Company with a right of first refusal to purchase the property. Ark Jupiter exercised the ROFR on October 4, 2016 and made a ten (10%) percent deposit on the purchase price of approximately Five Million Two Hundred Thousand Dollars ($5,200,000). Concurrent with the execution of the ROFR, Ark Jupiter entered into a Purchase and Sale Agreement with 1065 A1A, LLC to sell this same property for Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000). In connection with the sale, Ark Jupiter and 1065 A1A, LLC entered into a temporary lease and sub-lease arrangement which expired on July 18, 2017. The Company vacated the space in June. In connection with these transactions the Company recognized a gain in the amount of $1,637,000 during the 13-weeks ended December 31, 2016.

The Company transferred its lease and the related assets$1,067,000 consisting of: (i) impairment ofCanyon Road located in New York, NY to a former employee. In connection with this transfer, the Company recognized an impairment loss included in depreciation and amortization expense trademarks in the amount of $75,000 for$721,000, (ii) accelerated depreciation of fixed assets in the 13-weeks ended December 31, 2016.amount of $333,000, and (iii) write-offs of prepaid expenses in the amount of $13,000. The restaurant was closed on January 12, 2019.

Critical Accounting Policies

The preparation of financial statements requires the application of certain accounting policies, which may require the Company to make estimates and assumptions of future events. In the process of preparing its consolidated condensed financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. The primary estimates underlying the Company’s consolidated condensed financial statements include allowances for potential bad debts on accounts and notes receivable, leases, the useful lives and recoverability of its assets, such as property and intangibles, fair values of financial instruments, the realizable value of its tax assets and other matters. Management bases its estimates on certain assumptions, which it believes are reasonable in the circumstances, and actual results could differ from those estimates. Although management does not believe that any change in those assumptions in the near term would have a material effect on the Company’s consolidated financial position or the results of operations, differences in actual results could be material to the consolidated condensed financial statements.

The Company’s critical accounting policies are described in the Company’s Form 10-K for the year ended September 30, 2017.29, 2018. There have been no significant changes to such policies during fiscal 20182019 other than those disclosed in Note 1 to the Consolidated Condensed Financial Statements.consolidated condensed financial statements.

Recently Adopted and Issued Accounting Standards

See Note 1 to the Consolidated Condensed Financial Statementsconsolidated condensed financial statements for a description of recent accounting pronouncements, including those adopted in fiscal 20182019 and the expected dates of adoption and the anticipated impact on the Consolidated Condensed Financial Statements.consolidated condensed financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company purchases commodities such as chicken, beef, lobster, crabs and shrimp for the Company’s restaurants.  The prices of these commodities may be volatile depending upon market conditions.  The Company does not purchase forward commodity contracts because the changes in prices for these items have historically been short-term in nature and, in the Company’s view, the cost of the contracts is in excess of the benefits.Not Applicable

The Company’s business is also highly seasonal and dependent on the weather. Outdoor seating capacity, such as terraces and sidewalk cafes, is available for dining only in the warm seasons and then only in inclement weather.

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 December 30, 201729, 2018 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 first quarter of fiscal 20182019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not subject to pending legal proceedings, other than ordinary claims incidental to its business, which the Company does not believe will materially impact results of operations.

Item 1A. Risk Factors

The most significant risk factors applicable to the Company are described in Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017 (the “2017 Form 10-K”). There have been no material changes to the risk factors previously disclosed in the 2017 Form 10-K. The risks described in the 2017 Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known to management may materially adversely affect the Company’s business, financial condition, and/or operating results.Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.