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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 3, 2020
or,
TRANSITION REPORT PURSUANT TO SECTIONS 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-09453
ARK RESTAURANTS CORP.
(Exact Name of Registrant as Specified in Its Charter)

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

85 Fifth Avenue,New York,NY10003
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (212) 206-8800
Securities registered pursuant to section 12(b) of the Act:
 Title of each class Trading symbol(s)Name of each exchange on which registered 
 Common Stock, par value $.01 per share ARKRThe NASDAQ Stock Market LLC 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller Reporting Company
Emerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes No
As of March 28, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $29,107,890.
At December 18, 2020, there were outstanding 3,502,407 shares of the Registrant’s Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
(1) In accordance with General Instruction G (3) of Form 10-K, certain information required by Part III hereof will either be incorporated into this Form 10-K by reference to the registrant’s definitive proxy statement for the registrant’s 2020 Annual Meeting of Stockholders filed within 120 days of October 3, 2020 or will be included in an amendment to this Form 10-K filed within 120 days of October 3, 2020.



PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
On one or more occasions, we may make statements in this Annual Report on Form 10-K 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” of this Annual Report on Form 10-K.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of the factors that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to:
the impacts of the novel coronavirus pandemic on our company, our employees, our customers, our partners, our industry and the economy as a whole;
the adverse impact of economic conditions on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing;
the adverse impact of civil unrest on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing;
our ability to open new restaurants in new and existing markets, including difficulty in finding sites and in negotiating acceptable leases;
vulnerability to changes in consumer preferences and economic conditions;
vulnerability to conditions in the cities in which we operate;
vulnerability to natural disasters given the geographic concentration and real estate intensive nature of our business;
our ability to effectively identify and secure appropriate new sites for restaurants;
changes to food and supply costs, especially for seafood, shellfish, chicken and beef;
negative publicity, whether or not valid, and our ability to respond to and effectively manage the accelerated impact of social media;
concerns about food safety and quality and about food-borne illnesses;
our ability to service our level of indebtedness;
3


the impact of any security breaches of confidential customer information in connection with our electronic process of credit and debit card transactions; and
the impact of any failure of our information technology system or any breach of our network security.

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

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q, and 8-K, our Schedule 14A, our press releases and other materials released to the public. Although we believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable; any or all of the forward-looking statements in this Annual Report on Form 10-K, our reports on Forms 10-Q, and 8-K, our Schedule 14A and any other public statements that are made by us 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 Annual Report on Form 10-K, 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 Annual Report on Form 10-K or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent periodic reports filed with the Securities and Exchange Commission on Forms 10-Q 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.
4


Item 1.    Business
COVID-19 Pandemic
On March 11, 2020, in light of the rapid spread of the novel Coronavirus (“COVID-19” or “Coronavirus”), the World Health Organization declared the COVID-19 outbreak to be a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations. Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home" directives, and mandatory closure of all of our locations.
As a result of state and local governments lifting “stay at home” orders and mandatory shut-down requirements from May through August 2020, the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments.
Due to the impact of the COVID-19 pandemic, during the year ended October 3, 2020, subsequent to reopening after initial shut-downs, the Company has temporarily closed several restaurants, typically for three to seven days. The Coronavirus has caused unprecedented business disruptions, especially in the hospitality industry. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted.
As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows, and has a working capital deficiency of $3,234,000 as of October 3, 2020, all of which could negatively impact its ability to meet its obligations over the next 12 months. However, we believe that our existing cash balances, which include the proceeds from Paycheck Protection Program loans (see Note 10 - Notes Payable of the consolidated financial statements) and actions taken by management, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through December 23, 2021.
In response to the business disruption and liquidity concerns caused by the COVID-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:
While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95% of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.
As restaurants re-opened, restaurant management salaries were restored to 70% of pre-pandemic amounts. If a location produced sustained cash flow, restaurant management salaries were restored to 100% of pre-pandemic amounts.
Initially reduced the pay of all corporate and administrative staff by 50% to 75% and senior management salaries by 75% to 95%. As of October 3, 2020, most corporate salaries have been restored to 65% of pre-pandemic levels. In addition, the Board waived its fees for the balance of 2020.
Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates and an agreement to extend the maturity dates of our revolving credit agreement (see Note 10 - Notes Payable of the consolidated financial statements). In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.
Canceled the payment of the $0.25 dividend declared on March 2, 2020.
Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
Canceled or delayed all non-essential capital expenditures.
Suspended the vast majority of lease payments while our restaurants were closed as a result of government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with these landlords to reduce the lease payments. While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions through April 2021 at many of our leased properties. However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.
Certain Company subsidiaries applied for and received a total of approximately $15.0 million of loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020.
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Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
Due to the rapid development and fluidity of this situation, management cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The disruption in operations has led the Company to consider the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others. In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial condition, future results of operations and liquidity. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic.
Overview
We are a New York corporation formed in 1983. As of the fiscal year ended October 3, 2020, we owned and/or operated 20 restaurants and bars, 17 fast food concepts and catering operations through our subsidiaries. Initially our facilities were located only in New York City. As of the fiscal year ended October 3, 2020, five of our restaurant and bar facilities are located in New York City, two are located in Washington, D.C., five are located in Las Vegas, Nevada, three are located in Atlantic City, New Jersey, three are located on the east coast of Florida and two are located on the gulf coast of Alabama.
In addition to the shift from a Manhattan-based operation to a multi-city operation, the nature of the facilities operated by us has shifted from smaller, neighborhood restaurants to larger, destination properties intended to benefit from high patron traffic attributable to the uniqueness of the location and catered events. Most of our properties which have been opened in recent years are of the latter description. As of the fiscal year ended October 3, 2020, these include the operations at the 12 fast food facilities in Tampa, Florida and Hollywood, Florida (2004); the Gallagher’s Steakhouse and Gallagher’s Burger Bar in the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey (2005); Yolos at the Planet Hollywood Resort and Casino in Las Vegas, Nevada (2007); Robert at the Museum of Arts & Design at Columbus Circle in Manhattan (2010); Broadway Burger Bar and Grill at the New York-New York Hotel and Casino in Las Vegas, Nevada (2011); Clyde Frazier’s Wine and Dine in Manhattan (2012); Broadway Burger Bar and Grill in the Quarter at the Tropicana Hotel and Casino in Atlantic City, New Jersey (2013); The Rustic Inn in Dania Beach, Florida (2014); Shuckers in Jensen Beach, Florida (2016); two Original Oyster Houses, one in Gulf Shores, Alabama and one in Spanish Fort, Alabama (2017) and JB's on the Beach in Deerfield Beach, Florida (2019).
The names and themes of each of our restaurants are different except for our two Gallagher’s Steakhouse restaurants, two Broadway Burger Bar and Grill restaurants, and two Original Oyster House restaurants. The menus in our restaurants are extensive, offering a wide variety of high-quality foods at generally moderate prices. The atmosphere at many of the restaurants is lively and extremely casual. Most of the restaurants have separate bar areas, are open seven days a week and most serve lunch as well as dinner. A majority of our net sales are derived from dinner as opposed to lunch service.
While decor differs from restaurant to restaurant, interiors are marked by distinctive architectural and design elements which often incorporate dramatic interior open spaces and extensive glass exteriors. The wall treatments, lighting and decorations are typically vivid, unusual and, in some cases, highly theatrical.
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The following table sets forth the restaurant properties we lease, own and operate as of October 3, 2020:
NameLocation
Year
Opened(1)
Restaurant Size
(Square Feet)
Seating
Capacity(2)
Indoor-
(Outdoor)
Lease
Expiration(3)
SequoiaWashington Harbour
Washington, D.C.
199026,000 600 (400)2032
Bryant Park Grill & CaféBryant Park
New York, New York
199525,000 180 (820)2025
America(4)New York-New York
Hotel and Casino
Las Vegas, Nevada
199720,000 450  2023
Gallagher’s Steakhouse(4)New York-New York
Hotel & Casino
Las Vegas, Nevada
19975,500 260  2023
Gonzalez y Gonzalez(4)New York-New York
Hotel & Casino
Las Vegas, Nevada
19972,000 120  2023
Village Eateries (4)(5)New York-New York
Hotel & Casino
Las Vegas, Nevada
19976,300 400 (*)2023
RobertMuseum of Arts & Design
New York, New York
20095,530 150  2035
Thunder Grill (6)Union Station
Washington, D.C.
199910,000 500  2019
Gallagher’s Steakhouse (7)Resorts Atlantic City
Hotel and Casino
Atlantic City, New Jersey
20056,280 196  2020
Gallagher’s Burger Bar (7)Resorts Atlantic City
Hotel and Casino
Atlantic City, New Jersey
20052,270 114  2020
YolosPlanet Hollywood
Resort and Casino
Las Vegas, Nevada
20074,100 206  2026
Clyde Frazier’s Wine and Dine
Tenth Avenue
(between 37th and 38th Streets)
New York, New York
201210,000 250  2032
Broadway Burger Bar and GrillTropicana Hotel and Casino
Atlantic City, New Jersey
20136,825 225  2033
The Rustic InnDania Beach, Florida201416,150 575 (75)Owned
Southwest Porch (8)Bryant Park
New York, New York
20152,240 — (160)2025
ShuckersJensen Beach, Florida20167,310 220 (170)Owned
The Original Oyster HouseGulf Shores, Alabama20179,230 300  Owned
The Original Oyster HouseSpanish Fort, Alabama201710,500 420  Owned
JB's on the BeachDeerfield Beach, Florida201910,000 365 (100)2044
__________________________________
(1)Restaurants are, from time to time, renovated, renamed and/or converted from or to managed or owned facilities. “Year Opened” refers to the year in which we, or an affiliated predecessor of us, first opened, acquired or began managing a restaurant at the applicable location, notwithstanding that the restaurant may have been renovated, renamed and/or converted from or to a managed or owned facility since that date.
(2)Seating capacity refers to the seating capacity of the indoor part of a restaurant available for dining in all seasons and weather conditions. Outdoor seating capacity, if applicable, is set forth in parentheses and refers to the seating capacity of terraces and sidewalk cafes which are available for dining only in the warm seasons and then only inclement weather.
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(3)Assumes the exercise of all of our available lease renewal options.
(4)Under the America lease, the sales goal is $6.0 million. Under the Gallagher’s Steakhouse lease, the sales goal is $3.0 million. Under the lease for Gonzalez y Gonzalez and the Village Eateries, the combined sales goal is $10.0 million. Each of the restaurants is currently operating at a level in excess of the minimum sales level required to exercise the renewal option for each respective restaurant.
(5)We operate six small food court restaurants and one full-service restaurant in the Village Eateries food court at the New York-New York Hotel & Casino. We also operate that hotel’s room service, banquet facilities and employee cafeteria.
(6)The lease for this location expired in January 2019 and has been operating on a month-to-month basis with the consent of the landlord.
(7)On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ. which were on a month-to-month, no rent lease. The Company expects that the closure of this property will occur on January 4, 2021 and will not result in a material charge to the Company’s operations.
(8)This location is for a kiosk located at Bryant Park, New York, NY and all seating is outdoors.
(*)Represents common area seating.
The following table sets forth our less than wholly-owned properties that are managed by us, which have been consolidated as of October 3, 2020 – see Notes 1 and 2 to the Consolidated Financial Statements:
NameLocation
Year
Opened(1)
Restaurant Size
(Square Feet)
Seating
Capacity(2)
Indoor-
(Outdoor)
Lease
Expiration(3)
El Rio Grande (4)(5)Third Avenue
(between 38th and 39th Streets)
New York, New York
19874,000 220 (60)2029
Tampa Food Court(6)(7)Hard Rock Hotel and Casino
Tampa, Florida
20044,000 250 (*)2029
Hollywood Food Court(6)(7)Hard Rock Hotel and Casino
Hollywood, Florida
20049,000 250 (*)2029
Lucky Seven(6)Foxwoods Resort Casino
Ledyard, Connecticut
20064,825 1,000 (**)2026
__________________________________
(1)Restaurants are, from time to time, renovated, renamed and/or converted from or to managed or owned facilities. “Year Opened” refers to the year in which we, or an affiliated predecessor of us, first opened, acquired or began managing a restaurant at the applicable location, notwithstanding that the restaurant may have been renovated, renamed and/or converted from or to a managed or owned facility since that date.
(2)Seating capacity refers to the seating capacity of the indoor part of a restaurant available for dining in all seasons and weather conditions. Outdoor seating capacity, if applicable, is set forth in parentheses and refers to the seating capacity of terraces and sidewalk cafes which are available for dining only in the warm seasons and then only inclement weather.
(3)Assumes the exercise of all our available lease renewal options.
(4)Management fees earned, which have been eliminated in consolidation, are based on a percentage of cash flow of the restaurant.
(5)We own a 19.2% interest in the partnership that owns El Rio Grande.
(6)Management fees earned, which have been eliminated in consolidation, are based on a percentage of gross sales of the restaurant.
(7)We own a 64.4% interest in the partnership that owns the Tampa and Hollywood Food Courts.
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(*)Represents common area seating
(**)Represents number of seats in the Bingo Hall at the Foxwoods Resort and Casino where our restaurant is located.
Leases
We are not currently committed to any significant development projects, except for the acquisition of Blue Moon Fish Company discussed below; however, we may take advantage of opportunities we consider to be favorable, when they occur, depending upon the availability of financing and other factors.
Restaurant Expansion and Other Developments
On May 15, 2019, the Company, through a newly formed, wholly-owned subsidiary, acquired the assets of JB's on the Beach, a restaurant and bar located in Deerfield Beach, Florida for $7,036,000. 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 $7,000,000 and cash from operations. Concurrent with the acquisition, the Company entered into a 20 year lease (with a five year option) for the restaurant facility and parking lot with the former owner of JB's on the Beach, who is also the owner of the underlying real estate. Rent payments under the lease are $600,000 per year with 10% increases every five years.
During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Hollywood, Florida that they were exercising their right to relocate our space, at their sole cost, as contractually agreed to in the original lease. The new facilities were completed on September 16, 2019, on which date we closed our existing location and opened the new facilities. The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $5,474,000 with a corresponding increase in deferred rent. The net book value of the existing leasehold improvements relating to the original location in the amount of $918,000 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.
During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Tampa, Florida that they were exercising their right to renovate the front of the house space, at their sole cost, as contractually agreed to in the original lease. In connection with this renovation, we closed our existing facilities on June 2, 2019 and re-opened the renovated facilities on September 28, 2019. The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $3,179,000 with a corresponding increase in deferred rent. The net book value of the existing leasehold improvements relating to the original location in the amount of $459,000 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.
On September 29, 2019, upon the adoption of Accounting Standard Codification Topic 842 (“ASC 842”), the unamortized Hollywood and Tampa balances of leasehold improvements and deferred rent in the amounts of $8,269,000 and $7,198,000, respectively, were reclassified as right-of-use assets in the net amount of $1,071,000 and are being amortized to lease expense on a straight-line basis over the remaining terms of the respective leases.
Prior to the COVID-19 pandemic, the Company was in the process of developing three restaurants at a large outdoor mall in Easton, Ohio in partnership with the landlord. In connection therewith, the Company had capitalized costs of approximately $400,000, of which $200,000 was reimbursed by the landlord in October 2020. The Company does not expect this project to continue. Accordingly, the balance of the unreimbursed costs have been expensed to general and administrative expense as of October 3, 2020.
On October 2, 2020, the Company, through a newly formed, wholly-owned subsidiary, entered into an agreement to acquire the assets of Bear Ice, Inc. and File Gumbo Inc., which collectively operate a restaurant and bar named Blue Moon Fish Company located in Lauderdale by the Sea, FL. The transaction closed on December 1, 2020 with the total purchase price being $2,750,000 plus inventory and was paid with cash in the amount of $1,750,000 and a four year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest. The acquisition will be accounted for as a business combination. Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four, five-year extension options. Rent payments under the lease are approximately $360,000 per year and increase by approximately 15% as each option is exercised.
The opening of a new restaurant is invariably accompanied by substantial pre-opening expenses and early operating losses associated with the training of personnel, excess kitchen costs, costs of supervision and other expenses during the pre-opening period and during a post-opening “shake out” period until operations can be considered to be functioning normally. The amount of such pre-opening expenses and early operating losses can generally be expected to depend upon the size and complexity of the facility being opened.
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Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants. There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity.
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 was located, and rising labor costs. As a result, included in the consolidated statement of operations for the year ended September 28, 2019 are losses on closure in the amount of $1,106,000 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 and other expenses in the amount of $52,000. The restaurant closed on January 12, 2019.
On April 2, 2020, the Company advised the landlord of a catering space in New York, NY that we would be terminating the lease. In connection with this notification, the Company recorded a loss of $364,000 during the year ended October 3, 2020 consisting of (i) rent accrued in accordance with the termination provisions of the lease, (ii) the write-off of the unamortized balance of purchased leasehold rights, (iii) the write-off of our security deposit, (iv) the write-off of ROU assets and related lease liabilities, and (v) the write-off of the net book value of fixed assets.
On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ. which were on a month-to-month, no rent lease. The closure of this property will occur on January 4, 2020 and will not result in a material charge to the Company’s operations.
Investment in New Meadowlands Racetrack LLC
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. 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 in February 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.
In addition to the Company’s ownership interest in NMR, if casino gaming is approved at the Meadowlands and NMR is granted the right to conduct said gaming, 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.
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 discussed above. The principal and accrued interest related to this note in the amounts of $1,766,000 and $1,713,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at October 3, 2020 and September 28, 2019, respectively.
On June 7, 2018, the New Jersey State Legislature voted to legalize sports betting at casinos and racetracks in the state. Pursuant to this legislation, NMR opened a sports book in partnership with FanDuel, a leading provider of daily fantasy sports, in June 2018.

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Restaurant Management
Each restaurant is managed by its own manager and has its own chef. Food products and other supplies are purchased primarily from various unaffiliated suppliers, in most cases by our headquarters' personnel. Each of our restaurants has two or more assistant managers and sous chefs (assistant chefs). Financial and management control is maintained at the corporate level through the use of automated systems that include centralized accounting and reporting.
Purchasing and Distribution
We strive to obtain quality menu ingredients, raw materials and other supplies and services for our operations from reliable sources at competitive prices. Substantially all menu items are prepared on each restaurant’s premises daily from scratch, using fresh ingredients. Each restaurant’s management determines the quantities of food and supplies required and then orders the items from local, regional and national suppliers on terms negotiated by our centralized purchasing staff. Restaurant-level inventories are maintained at a minimum dollar-value level in relation to sales due to the relatively rapid turnover of the perishable produce, poultry, meat, fish and dairy commodities that are used in operations.
We attempt to negotiate short-term and long-term supply agreements depending on market conditions and expected demand. However, we do not contract for long periods of time for our fresh commodities such as produce, poultry, meat, fish and dairy items and, consequently, such commodities can be subject to unforeseen supply and cost fluctuations. Independent food service distributors deliver most food and supply items daily to restaurants. The financial impact of the termination of any such supply agreements would not have a material adverse effect on our financial position.
Competition
The hospitality industry is highly competitive and is often affected by changes in taste and entertainment trends among the public, by local, national and economic conditions affecting spending habits, and by population and traffic patterns. We believe that the principal means of competition among restaurants include the location, type and quality of facilities and the type, quality and price of beverage and food served.
Our restaurants compete directly or indirectly with many well-established competitors, both nationally and locally owned, some with substantially greater financial resources than we have. Their resources and market presence may provide advantages in marketing, purchasing and negotiating leases. We compete with other restaurant and retail establishments for sites and finding management personnel.
Employees
At November 30, 2020, we employed 1,262 persons (including employees at managed facilities), 786 of whom were full-time employees, and 476 of whom were part-time employees; 44 of whom were headquarters personnel, 167 of whom were restaurant management personnel, 449 of whom were kitchen personnel and 440 of whom were restaurant service personnel. A number of our restaurant service personnel are employed on a part-time basis. Changes in minimum wage levels may adversely affect our labor costs and the restaurant industry generally because a large percentage of restaurant personnel are paid at or slightly above the minimum wage. Our employees are not covered by any collective bargaining agreements.
Government Regulation
We are subject to various federal, state and local laws affecting our business. Each restaurant is subject to licensing and regulation by a number of governmental authorities that may include alcoholic beverage control, health, sanitation, environmental, zoning and public safety agencies in the state or municipality in which the restaurant is located. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development and openings of new restaurants, or could disrupt the operations of existing restaurants.
Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county and municipal authorities for licenses and permits to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be subject to penalties, temporary suspension or revocation for cause at any time. Alcoholic beverage control regulations impact many aspects of the daily operations of our restaurants, including the minimum ages of patrons and employees consuming or serving such beverages; employee alcoholic beverages training and certification requirements; hours of operation; advertising; wholesale purchasing and inventory control of such beverages; seating of minors and the service of food within our bar areas; and the storage and dispensing of alcoholic beverages. State and local authorities in many jurisdictions routinely monitor compliance with alcoholic beverage laws. The failure to receive or retain, or a delay in obtaining, a liquor
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license for a particular restaurant could adversely affect our ability to obtain such licenses in jurisdictions where the failure to receive or retain, or a delay in obtaining, a liquor license occurred.
We are subject to “dram-shop” statutes in most of the states in which we have operations, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance. A settlement or judgment against us under a “dram-shop” statute in excess of liability coverage could have a material adverse effect on our operations.
Various federal and state labor laws govern our operations and our relationship with employees, including such matters as minimum wages, breaks, overtime, fringe benefits, safety, working conditions and citizenship requirements. We are also subject to the regulations of the Immigration and Naturalization Service. If our employees do not meet federal citizenship or residency requirements, their deportation could lead to a disruption in our work force. Significant government-imposed increases in minimum wages, paid leaves of absence and mandated health benefits, or increased tax reporting, assessment or payment requirements related to employees who receive gratuities could be detrimental to our profitability.
Our facilities must comply with the applicable requirements of the Americans With Disabilities Act of 1990 (“ADA”) and related state statutes. The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state laws, when constructing new restaurants or undertaking significant remodeling of existing restaurants, we must make them more readily accessible to disabled persons.
The New York State Liquor Authority must approve any transaction in which a shareholder of the licensee increases his holdings to 10% or more of the outstanding capital stock of the licensee and any transaction involving 10% or more of the outstanding capital stock of the licensee.
Seasonal Nature of Business
Our business is highly seasonal; however, our broader geographical reach as a result of recent acquisitions mitigates some of the risk. For instance, the second quarter of our fiscal year, consisting of the non-holiday portion of the cold weather season in New York and Washington (January, February and March), is the poorest performing quarter; however, in recent years this has been partially offset by our locations in Florida as they experience increased results in the winter months. We achieve our best results during the warm weather, attributable to our extensive outdoor dining availability, particularly at Bryant Park in New York and Sequoia in Washington, D.C. (our largest restaurants) and our outdoor cafes. However, even during summer months these facilities can be adversely affected by unusually cool or rainy weather conditions. Our facilities in Las Vegas are indoor and generally operate on a more consistent basis throughout the year.
Available Information
We make available free of charge through our Internet website, www.arkrestaurants.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of beneficial ownership of securities on Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished pursuant to Section 13(a) and Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the United States Securities and Exchange Commission, or SEC.
The above information is also available at the SEC’s Office of Investor Education and Advocacy at United States Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-0213 or obtainable by calling the SEC at (800) 732-0330. In addition, the SEC maintains an Internet website at www.sec.gov, where the above information can be viewed.
Our principal executive offices are located at 85 Fifth Avenue, New York, New York 10003, and our telephone number is (212) 206-8800. Unless the context specifically requires otherwise, the terms the “Company,” “Ark,” “we,” “us” and “our” mean Ark Restaurants Corp., a Delaware corporation, and its consolidated subsidiaries.
Item 1A. Risk Factors
Not applicable.
Item 1B. Unresolved Staff Comments
Not applicable.

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Item 2. Properties
Our restaurant facilities and our executive offices, with the exception of The Rustic Inn in Dania Beach, Florida, Shuckers in Jensen Beach, Florida and the two Original Oyster House properties in Alabama, are occupied under leases. Most of our restaurant 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 our sales at such facility. As of October 3, 2020, these leases (including leases for managed restaurants) have terms (including any available renewal options) expiring as follows:
Fiscal Year Lease
Terms Expire
Number of
Facilities
2021-202510
2026-20305
2031-20354
2036-2040
2041-20451
Our executive, administrative and clerical offices are located in approximately 8,500 square feet of office space at 85 Fifth Avenue, New York, New York. Our lease for this office space expires in 2025 and contains two, five-year extension options.
For information concerning our future minimum rental commitments under non-cancelable operating leases, see Note 9 of the Notes to Consolidated Financial Statements for additional information concerning our leases.
Item 3.    Legal Proceedings
In the ordinary course of our business, we are a party to various lawsuits arising from accidents at our restaurants and workers’ compensation claims, which are generally handled by our insurance carriers.
Our employment of management personnel, waiters, waitresses and kitchen staff at a number of different restaurants has resulted in the institution, from time to time, of litigation alleging violation by us of employment discrimination laws. We do not believe that any of such suits will have a material adverse effect upon us, our financial condition or operations.
On May 1, 2018, two former tipped service workers (the “Plaintiffs”), individually and on behalf of all other similarly situated personnel, filed a putative class action lawsuit (the “Complaint”) against the Company and certain subsidiaries as well as certain officers of the Company (the “Defendants”).  Plaintiffs alleged, on behalf of themselves and the putative class, that the Company violated certain of the New York State Labor Laws and related regulations.  The Complaint sought unspecified money damages, together with interest, liquidated damages and attorney fees.  On December 14, 2020, the parties reached a settlement agreement resolving all issues alleged in the Complaint, which will be submitted to the New York State Supreme Court for approval, for approximately the amount which was previously accrued.
Item 4.    Mine Safety Disclosures
Not Applicable.
13


PART II
Item 5.    Market For The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Our Common Stock
Our Common Stock, $.01 par value, is traded on the Nasdaq Capital Market under the symbol “ARKR.”
As of December 18, 2020 there were 30 holders of record of our common stock and approximately an additional 2,141 beneficial owners.
Dividend Policy
On December 3, 2018, March 1, 2019, June 13, 2019, September 9, 2019 and November 26, 2019, our Board of Directors declared quarterly cash dividends in the amount of $0.25 per share.
On March 2, 2020, the Board of Directors declared a quarterly dividend of $0.25 per share on the Company’s common stock which was to be paid on April 6, 2020, to shareholders of record at the close of business on March 16, 2020.
On March 13, 2020, the Company announced that, in light of the unprecedented circumstances and rapidly changing situation with respect to COVID-19, as part of an overall plan to preserve cash flow, the Board of Directors determined that it was appropriate for the Company to defer payment of the dividend that was declared on March 2, 2020.
On July 1, 2020, the dividend declared on March 2, 2020 was canceled.
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 does not expect to pay quarterly cash dividends for the foreseeable future as a result of the disruption to its operations from the COVID-19 pandemic.
Purchases of Equity Securities by Issuer and Affiliated Purchases
None
Recent Sales of Unregistered Securities
None
Securities Authorized for Issuance under Equity Compensation Plans
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.
During the year ended October 3, 2020, options to purchase 266,500 shares of common stock at an exercise price of $21.90 per share were granted to employees, directors of the Company and other service providers. Such options are exercisable as to 50% of the shares commencing on the second anniversary of the date of grant and as to the remaining 50% commencing on the fourth anniversary of the date of grant. The grant date fair value of these stock options was $3.35 per share.
During the year ended September 28, 2019, options to purchase 23,000 shares of common stock at an exercise price of $19.61 per share were granted to employees of the Company. Such options are exercisable as to 50% of the shares commencing on the date of grant and as to an additional 50% commencing on the first anniversary of the date of grant. Such options had an aggregate grant date fair value of $3.48 per share and totaled approximately $80,000.
During the year ended September 28, 2019, options to purchase 11,000 shares of common stock at an exercise price of $20.18 per share were granted to employees of the Company. Such options are exercisable as to 25% of the shares commencing on the first anniversary of the date of grant and 25% on the second, third and fourth anniversary thereof. Such options had an aggregate grant date fair value of $3.55 per share and totaled approximately $39,000.
14


During the year ended September 28, 2019, options to purchase 19,500 shares of common stock with a strike price of $12.04 were exercised on a net issue basis as provided in the 2010 Plan. Accordingly, 11,774 shares were immediately repurchased and retired from treasury.

The following is a summary of the securities issued and authorized for issuance under our Stock Option Plans at October 3, 2020:

Plan Category(a) Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(b) Weighted -
average exercise
price of
outstanding
options, warrants
and rights
(c) Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans approved by shareholders626,500$20.41174,500
Equity compensation plans not approved by shareholders (1)
NoneN/ANone
Total626,500$20.41174,500
Of the 626,500 options outstanding on October 3, 2020, 213,125 were held by the Company’s officers and directors.
(1)The Company has no equity compensation plans that were not approved by shareholders.

The Company also maintains a Section 162(m) Cash Bonus Plan. Under the Company's Section 162(m) Cash Bonus Plan, compensation paid in excess of $1,000,000 to any employee who is the chief executive officer, or one of the three highest paid executive officers on the last day of that tax year (other than the chief executive officer or the chief financial officer) is not tax deductible.
Stock Performance Graph
The graph set forth below compares the yearly percentage change in cumulative total shareholder return on the Company’s Common Stock for the five-year period commencing October 3, 2015 and ending October 3, 2020 against the cumulative total return on the NASDAQ Market Index and a peer group comprised of those public companies whose business activities fall within the same standard industrial classification code as the Company. This graph assumes a $100 investment in the Company’s Common Stock and in each index on October 3, 2015 and that all dividends paid by companies included in each index were reinvested.
arkr-20201003_g1.jpg
15



 Cumulative Total Return
10/03/1509/30/1609/30/1709/30/1809/28/1910/03/20
Ark Restaurants Corp.$100.00 $102.14 $115.57 $114.89 $105.36 $61.37 
NASDAQ Composite100.00 116.42 144.00 180.24 181.19 255.40 
SIC Code 5812 - Eating & Drinking Places100.00 104.00 121.32 137.34 181.14 188.69 

Item 6.    Selected Consolidated Financial Data
Not applicable.
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
COVID-19 Pandemic
On March 11, 2020, in light of the rapid spread of the novel Coronavirus (“COVID-19” or "Coronavirus"), the World Health Organization declared the COVID-19 outbreak to be a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations. Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home" directives, and mandatory closure of all of our locations.
As a result of state and local governments lifting “stay at home” orders and mandatory shut-down requirements from May through August 2020, the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments.
Due to the impact of the COVID-19 pandemic, during the year ended October 3, 2020, subsequent to reopening after initial shut-downs, the Company has temporarily closed several restaurants, typically for three to seven days. The Coronavirus has caused unprecedented business disruptions, especially in the hospitality industry. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted.
As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows, which could negatively impact its ability to meet its obligations over the next 12 months. However, we believe that our existing cash balances, which include the proceeds from Paycheck Protection Program loans (see Note 10 - Notes Payable of the consolidated financial statements) and actions taken by management, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through December 23, 2021.
In response to the business disruption and liquidity concerns caused by the COVID-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:
While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95% of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.
As restaurants re-opened, restaurant management salaries were restored to 70% of pre-pandemic amounts. If a location produced sustained cash flow, restaurant management salaries were restored to 100% of pre-pandemic amounts.
Initially reduced the pay of all corporate and administrative staff by 50% to 75% and senior management salaries by 75% to 95%. As of October 3, 2020, most corporate salaries have been restored to 65% of pre-pandemic levels. In addition, the Board waived its fees for the balance of 2020.
Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates and an agreement to extend the maturity dates of our revolving credit facility (see Note 10 - Notes Payable of the consolidated financial statements). In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.
Canceled the payment of the $0.25 dividend declared on March 2, 2020.
16


Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
Canceled or delayed all non-essential capital expenditures.
Suspended the vast majority of lease payments while our restaurants were closed as a result of government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with these landlords to reduce the lease payments. While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions through April 2021 at many of our leased properties. However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.
Certain Company subsidiaries applied for and received a total of approximately $15.0 million of loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020.
Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
Due to the rapid development and fluidity of this situation, management cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The disruption in operations has led the Company to consider the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others. In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial condition, future results of operations and liquidity. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic.
Overview
As of October 3, 2020, the Company owned and operated 20 restaurants and bars, 17 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of customer and distribution methods. The Company believes it meets the criteria for aggregating its operating segments into a single reporting segment in accordance with applicable accounting guidance. The consolidated statements of operations for the years ended October 3, 2020 and September 28, 2019 include revenues and income (loss) of approximately $7,489,000 and $168,000 and $3,380,000 and ($122,000), respectively, related to JB's on the Beach, which was acquired on May 15, 2019. 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 was located, and rising labor costs. As a result, included in the consolidated statement of operations for the year ended September 28, 2019 are losses on closure in the amounts of $1,106,000 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 and other expenses in the amount of $52,000. The restaurant closed on 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 fiscal years ended October 3, 2020 and September 28, 2019 included 53 and 52 weeks, respectively.
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.

17


Results of Operations
The Company’s operating loss for the year ended October 3, 2020 was $(7,796,000) as compared to operating income of $3,246,000 for the year ended September 28, 2019 which included a loss of $1,106,000 relating to the closure of Durgin-Park located in Boston, MA. This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 in connection with the COVID-19 pandemic and a $364,000 loss on the termination of a lease. Although state and local governments have lifted “stay at home” orders and mandatory shut-down requirements at varying levels of limited capacity from May through September 2020 and the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., our revenues and operating results continue to be well below prior periods.
In addition to the decrease in restaurant revenue from the mandatory closures and operating at varying levels of limited capacity, the Company estimates that it incurred approximately $3,150,000 of costs directly related to COVID-19 during the year ended October 3, 2020 consisting primarily of payments to employees for paid-time off during restaurant closures, inventory waste, and rent and rent related costs for closed restaurants from the day that they closed.

Recently, there has been a significant increase in reported COVID-19 cases in states where we have significant locations. This has resulted in some local governments responding by taking additional measures, including implementing a further reduction of in-restaurant capacity in certain locations. Although this is a developing situation, to this point these capacity reductions have not had a significant impact on our overall sales trends. We continue to monitor and adhere to local restrictions and are maintaining elevated safety measures, including additional sanitation and disinfecting practices and the use of gloves and facial protection for our employees.

Further, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses.

The following table summarizes the significant components of the Company’s operating results for the years ended October 3, 2020 and September 28, 2019, respectively:
Year EndedVariance
October 3,
2020
September 28,
2019
$%
REVENUES:
Food and beverage sales$104,062 $159,125 $(55,063)-34.6 %
Other revenue2,428 3,229 (801)-24.8 %
Total revenues106,490 162,354 (55,864)-34.4 %
COSTS AND EXPENSES:
Food and beverage cost of sales28,583 43,435 (14,852)-34.2 %
Payroll expenses40,975 56,675 (15,700)-27.7 %
Occupancy expenses15,391 17,413 (2,022)-11.6 %
Other operating costs and expenses14,757 20,378 (5,621)-27.6 %
General and administrative expenses10,160 12,011 (1,851)-15.4 %
Loss on termination of lease364 — 364 100.0 %
Loss on closure of Durgin-Park— 1,106 (1,106)-100.0 %
Impairment loss from write-down of long-lived assets— 2,857 (2,857)-100.0 %
Depreciation and amortization4,056 5,233 (1,177)-22.5 %
Total costs and expenses114,286 159,108 (44,822)-28.2 %
OPERATING INCOME (LOSS)$(7,796)$3,246 $(11,042)-340.2 %

18


Revenues
During the year ended October 3, 2020, revenues decreased 34.4% compared to the year ended September 28, 2019. This decrease resulted primarily from the government mandated closure of all of our restaurants in March 2020 and limited re-openings beginning in May 2020 in connection with the COVID-19 pandemic.
Food and Beverage Same-Store Sales
On a Company-wide basis, same-store food and beverage sales decreased 37.1% for the year ended October 3, 2020 as compared to the year ended September 28, 2019 as follows:
Year EndedVariance
October 3,
2020
September 28,
2019
$%
(in thousands)  
Las Vegas$30,445 $48,787 $(18,342)-37.6 %
New York18,049 39,324 (21,275)-54.1 %
Washington, D.C.6,774 13,028 (6,254)-48.0 %
Atlantic City, NJ3,392 6,954 (3,562)-51.2 %
Connecticut859 1,980 (1,121)-56.6 %
Alabama10,813 14,048 (3,235)-23.0 %
Florida25,446 28,219 (2,773)-9.8 %
    Same-store sales95,778 152,340 $(56,562)-37.1 %
Other8,284 6,785   
    Food and beverage sales$104,062 $159,125   

A discussion of same-store sales for the year ended October 3, 2020 is not meaningful as a result of the impact of the government mandated closure of all of our restaurants in March 2020 and limited re-openings beginning in May 2020 in connection with the COVID-19 pandemic. Other food and beverage sales consist of sales related to new restaurants opened or acquired during the applicable period (JB’s on the Beach - $7,489,000 in 2020 and $3,380,000 in 2019), sales related to properties that were closed (Durgin-Park - $1,040,000 in 2019) and other fees.
Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants. There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity.
Other Revenues
Included in Other Revenues are purchase service fees which represent commissions earned by a subsidiary of the Company for providing purchasing services to other restaurant groups, as well as license fees, property management fees and other rentals. The decrease in other revenues for the year ended October 3, 2020 as compared to the year ended September 28, 2019 is primarily due to the impact of the COVID-19 pandemic.
19


Costs and Expenses
Costs and expenses for the years ended October 3, 2020 and September 28, 2019 were as follows (in thousands):
 Year Ended
October 3,
2020
% to
Total Revenues
Year Ended
September 28,
2019
% to
Total Revenues
Increase
(Decrease)
 $%
Food and beverage cost of sales$28,583 26.8 %$43,435 26.8 %(14,852)-34.2 %
Payroll expenses40,975 38.5 %56,675 34.9 %(15,700)-27.7 %
Occupancy expenses15,391 14.5 %17,413 10.7 %(2,022)-11.6 %
Other operating costs and expenses14,757 13.9 %20,378 12.6 %(5,621)-27.6 %
General and administrative expenses10,160 9.5 %12,011 7.4 %(1,851)-15.4 %
Loss on termination of lease364 0.3 %— — %364 100.0 %
Loss on closure of Durgin-Park— — %1,106 0.7 %(1,106)-100.0 %
Impairment loss from write-down of
long-lived assets
— — %2,857 1.8 %(2,857)-100.0 %
Depreciation and amortization4,056 3.8 %5,233 3.2 %(1,177)-22.5 %
Total costs and expenses$114,286 $159,108 $(44,822)

Food and beverage costs as a percentage of total revenues for the year ended October 3, 2020 were consistent with the same period of last year primarily as a result of a better mix of catering versus a la carte business at our larger properties (through the respective closure dates) combined with menu price increases partially offset by increases in food costs and inventory write-offs required as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.

Payroll expenses as a percentage of total revenues for the year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of retaining key restaurant management personnel at reduced salaries while restaurants were closed and operating at reduced capacity with no or limited corresponding revenues during the current year as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.

Occupancy expenses as a percentage of total revenues for the year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of rents being proportionally higher (even after some being reduced or abated by landlords) as compared to having no or limited corresponding revenues during the current year as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.

Other operating costs and expenses as a percentage of total revenues for the year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of increased professional fees at the restaurant-level.

General and administrative expenses (which relate solely to the corporate office in New York City) as a percentage of total revenues for the year ended October 3, 2020 increased as compared with the same period of last year primarily as a result of retaining corporate personnel at temporarily reduced salaries while restaurants were closed and operating at reduced capacity with no or limited corresponding revenues during the current year as a result of the government mandated closures of all of our restaurants in March 2020 in connection with the COVID-19 pandemic.

Depreciation and amortization expense for the year ended October 3, 2020 decreased as compared with the same period of last year primarily as a result of lower charges in the current period as a result of asset impairments in the fourth quarter of 2019 and second quarter of 2020 partially offset by depreciation on improvements placed in service in fiscal 2020.

Loss on Termination of Lease

On April 2, 2020, the Company advised the landlord of a catering space in New York, NY that we would be terminating the lease. In connection with this notification, the Company recorded a loss of $364,000 during the 13 weeks ended March 28, 2020, consisting of (i) rent accrued in accordance with the termination provisions of the lease, (ii) the write-off of the unamortized balance of purchased leasehold rights, (iii) the write-off of our security deposit, (iv) the write-off of ROU assets and related lease liabilities, and (v) the write-off of net book value of fixed assets.
20


Loss on closure of Durgin-Park
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 was located, and rising labor costs. As a result, included in the statement of operations for the year ended October 3, 2020 are losses on closure in the amount of $1,106,000 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 and other expenses in the amount of $52,000. The restaurant closed on January 12, 2019.

Impairment loss from write-down of long-lived assets
Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants. Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets. In such instances, we may impair assets to reduce their carrying values to fair values. Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment. As a result of the underperformance and increased competition at Clyde Frazier's Wine and Dine, the Company has recorded an impairment charge of $2,857,000 in the year ended September 28, 2019 related to this property.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for uncertain tax positions reflect management’s best estimate of current and future taxes to be paid. We are subject to income tax in numerous state taxing jurisdictions. Significant judgment and estimates are required in the determination of consolidated income tax expense. The provision for income taxes reflects federal income taxes calculated on a consolidated basis and state and local income taxes which are calculated on a separate entity basis.
For state and local income tax purposes, certain losses incurred by a subsidiary may only be used to offset that subsidiary’s income, with the exception of the restaurants operating in the District of Columbia. Accordingly, our overall effective tax rate has varied depending on the level of income and losses incurred at individual subsidiaries.
Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act made various tax law changes including among other things (i) modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes (ii) enhanced recoverability of AMT tax credit carryforwards (iii) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest, and (iv) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k).
As a result of the CARES Act, the Company recorded an income tax receivable of $2,673,000 as it is expecting to carryback its current year estimated taxable losses for fiscal year 2020 and recover prior taxes paid. The Company recorded an income tax benefit of $1,022,000 related to the carryback as the Company was subject to higher federal corporate income tax rates in prior periods than the current statutory tax rate of 21%. On November 18, 2020, the IRS issued Revenue Ruling 2020-27 that treats expenses funded by PPP loans as non-deductible for tax purposes if a business reasonably expects that a PPP loan will be forgiven in the future. Based on this Revenue Ruling 2020-27 and the uncertainty related to the PPP loan forgiveness in future periods, as discussed in Note 10 - Notes Payable of the consolidated financial statements, the Company has treated these expenses as deductible in fiscal 2020. The Company will continue to evaluate the impact of this ruling on its consolidated financial statements and may be required to reverse its income tax receivable and related income tax benefits during future interim periods as each Borrower applies for forgiveness.
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. Our overall effective tax rate in the future will be affected by factors such as income earned by our VIEs, generation of FICA TIP credits and the mix of geographical income for state tax purposes as Nevada does not impose an income tax.
21


Liquidity and Capital Resources
Our primary source of capital has been cash provided by operations and, in recent years, bank and other borrowings to finance specific transactions, acquisitions and large remodeling projects. We utilize cash generated from operations to fund the cost of developing and opening new restaurants and smaller remodeling projects of existing restaurants we own. Consistent with many other restaurant operators, we typically use operating lease arrangements for our restaurants. In recent years we have been able to acquire the underlying real estate at several locations along with the restaurant operation. We believe that our operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. As of October 3, 2020, we had a cash and cash equivalents balance of $16,886,000.

Due to the rapid development and fluidity of the COVID -19 pandemic, management cannot determine the ultimate impact that it will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The disruption in operations has led the Company to consider the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others. In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial condition, future results of operations and liquidity. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic.

In response to the uncertain market conditions resulting from the COVID-19 pandemic, we have enhanced our liquidity position through the following measures:
Fully drew down our Revolving Facility as of June 9, 2020.
Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates.
Although we were in compliance with all of our financial covenants under our Revolving Facility, our lender agreed to relaxed financial covenants through fiscal Q3 2021.
Canceled the payment of the $0.25 dividend declared on March 2, 2020.
Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
Canceled or delayed all non-essential capital expenditures.
Suspended the vast majority of lease payments while the restaurants were closed by government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with these landlords to reduce the lease payments. While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions through April 2021 at many of our leased properties. However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.
Certain Company subsidiaries applied for and received approximately $15.0 million of loans under the Paycheck Protection Program of the CARES Act, which was enacted March 27, 2020.
Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
The Company had a working capital deficiency of $(3,234,000) at October 3, 2020 as compared with a deficiency of $(4,373,000) at September 28, 2019. This increase resulted primarily from the proceeds of borrowings under the Paycheck Protection Program of $15.0 million offset by the recognition of $6,117,000 of current operating lease liabilities in connection with the adoption of ASC 842 on September 29, 2019 and the current portion of revolver advances in the amount of $6,300,000. We believe that our existing cash balances combined with measures taken due to COVID-19 pandemic described above, will be sufficient to meet our liquidity and capital spending requirements and finance our operating activities for at least the next 12 months.

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Cash Flows for the Years Ended October 3, 2020 and September 28, 2019

Net cash used in operating activities for the year ended October 3, 2020 decreased to ($4,528,000) as compared to $10,615,000 provided by operations for the year ended September 28, 2019. This decrease was attributable a decrease in net income as a result of the impacts of COVID-19 pandemic on our operations and changes in net working capital primarily related to prepaid, refundable and accrued income taxes, prepaid expenses and other current assets, accounts payable and accrued expenses.
Net cash used in investing activities for the years ended October 3, 2020 and September 28, 2019 was $(2,457,000) and $(3,196,000), respectively, and resulted primarily from purchases of fixed assets at existing restaurants.
Net cash provided by (used in) financing activities for the years ended October 3, 2020 and September 28, 2019 was $16,694,000 and $(5,254,000), respectively, resulted primarily from the payment of dividends, principal payments on notes payable and distributions to non-controlling interests and in the current period borrowings under our credit facility and the proceeds from PPP Loans.
On December 3, 2018, March 1, 2019, June 13, 2019, September 9, 2019 and November 26, 2019, our Board of Directors declared quarterly cash dividends in the amount of $0.25 per share.
On March 2, 2020, the Board of Directors declared a quarterly dividend of $0.25 per share on the Company’s common stock which was to be paid on April 6, 2020, to shareholders of record at the close of business on March 16, 2020.
On March 13, 2020, the Company announced that, in light of the unprecedented circumstances and rapidly changing situation with respect to COVID-19, as part of an overall plan to preserve cash flow, the Board of Directors determined that it was appropriate for the Company to defer payment of the dividend that was declared on March 2, 2020.
On July 1, 2020, the dividend declared on March 2, 2020 was canceled.
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 does not expect to pay quarterly cash dividends for the foreseeable future as a result of the disruption to its operations from the COVID-19 pandemic.
Restaurant Expansion and Other Developments
On May 15, 2019, the Company, through a newly formed, wholly-owned subsidiary, acquired the assets of JB's on the Beach, a restaurant and bar located in Deerfield Beach, Florida for $7,036,000. 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 $7,000,000 and cash from operations.
During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Hollywood, Florida that they were exercising their right to relocate our space, at their sole cost, as contractually agreed to in the original lease. The new facilities were completed on September 16, 2019, on which date we closed our existing location and opened the new facilities. The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $5,474,000 with a corresponding increase in deferred rent. The net book value of the existing leasehold improvements relating to the original location in the amount of $918,000 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.
During 2019, the Company was advised by the landlord of our food court at the Hard Rock Casino and Hotel in Tampa, Florida that they were exercising their right to renovate the front of the house space, at their sole cost, as contractually agreed to in the original lease. In connection with this renovation, we closed our existing facilities on June 2, 2019 and re-opened the renovated facilities on September 28, 2019. The Company recorded the value of the renovations made by the landlord, which includes leasehold improvements and furniture, fixtures and equipment, in the amount of $3,179,000 with a corresponding increase in deferred rent. The net book value of the existing leasehold improvements relating to the original location in the amount of $459,000 was reflected as a reduction of deferred rent on a straight-line basis over the remaining lease term.
On September 29, 2019, upon adoption of ASC 842, the unamortized Hollywood and Tampa balances of leasehold improvements and deferred rent in the amounts of $8,269,000 and $7,198,000, respectively, were reclassified as ROU assets in the net amount of $1,071,000 and are being amortized to lease expense on a straight-line basis over the remaining terms of the respective leases.
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Prior to the COVID-19 pandemic, the Company was in the process of developing three restaurants at a large outdoor mall in Easton, Ohio in partnership with the landlord. In connection therewith, the Company had capitalized costs of approximately $400,000, of which $200,000 was reimbursed by the landlord in October 2020. The Company does not expect this project to continue. Accordingly, the balance of these unreimbursed costs have been expensed to general and administrative expense as of October 3, 2020.
On October 2, 2020, the Company, through a newly formed, wholly-owned subsidiary, entered into an agreement to acquire the assets of Bear Ice, Inc. and File Gumbo Inc., which collectively operate a restaurant and bar named Blue Moon Fish Company located in Lauderdale by the Sea, FL. The transaction closed on December 1, 2020 with the total purchase price being $2,750,000 plus inventory and was paid with cash in the amount of $1,750,000 and a four year note held by the sellers in the amount of $1,000,000 payable monthly with 5% interest. The acquisition will be accounted for as a business combination. Concurrent with the acquisition, the Company assumed the related lease which expires in 2026 and has four, five-year extension options. Rent payments under the lease are approximately $360,000 per year and increase by approximately 15% as each option is exercised.
The opening of a new restaurant is invariably accompanied by substantial pre-opening expenses and early operating losses associated with the training of personnel, excess kitchen costs, costs of supervision and other expenses during the pre-opening period and during a post-opening “shake out” period until operations can be considered to be functioning normally. The amount of such pre-opening expenses and early operating losses can generally be expected to depend upon the size and complexity of the facility being opened.
Our restaurants generally do not achieve substantial increases in revenue from year to year, which we consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons, we would have to open additional restaurant facilities or expand existing restaurants. There can be no assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to establish their own identity.
We may take advantage of other opportunities we consider to be favorable, when they occur, depending upon the availability of financing and other factors.
Recent Restaurant Dispositions
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 was located, and rising labor costs. As a result, included in the consolidated statement of operations for the year ended October 3, 2020 are losses on closure in the amount of $1,106,000 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 and other expenses in the amount of $52,000. The restaurant closed on January 12, 2019.
On April 2, 2020, the Company advised the landlord of a catering space in New York, NY that we would be terminating the lease. In connection with this notification, the Company recorded a loss of $364,000 at March 28, 2020, consisting of rent accrued in accordance with the termination provisions of the lease, the write-off of the unamortized balance of purchased leasehold rights, our security deposit and the net book value of fixed assets.
On November 13, 2020, the Company was advised by the landlord that it would have to vacate Gallagher’s Steakhouse and Gallagher’s Burger Bar at the Resorts Casino Hotel located in Atlantic City, NJ. which were on a month-to-month, no rent lease. The closure of this property will occur on January 4, 2020 and will not result in a material charge to the Company’s operations.
Investment in and Receivable from New Meadowlands Racetrack
On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC (“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing member of NMR. 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 with no change in ownership. In February 2017 the Company funded its proportionate share ($222,000) of a $3,000,000 capital call bringing its total investment to $5,108,000 with no change in ownership.
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In addition to the Company’s ownership interest in NMR, if casino gaming is approved at the Meadowlands and NMR is granted the right to conduct said gaming, 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.
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 $1,766,000 and $1,713,000, are included in Investment In and Receivable From New Meadowlands Racetrack in the consolidated balance sheets at October 3, 2020 and September 28, 2019, respectively.
On June 7, 2018, the New Jersey State Legislature voted to legalize sports betting at casinos and racetracks in the state. Pursuant to this legislation NMR opened a sports book in partnership with FanDuel, a leading provider of daily fantasy sports, in June 2018.
Notes Payable – Bank
On June 1, 2018, the Company refinanced (the "Refinancing") its then existing indebtedness with its current lender, Bank Hapoalim B.M. (“BHBM”), by entering into an amended and restated credit agreement (the “Revolving Facility”), which matures on May 31, 2021 (see Note 17 - Subsequent Events of the consolidated financial statements). The Revolving Facility provides for total availability of the lesser of (i) $10,000,000 and (ii) $35,000,000 less the then aggregate amount of all indebtedness and obligations to BHBM. Borrowings under the Revolving Facility are payable upon maturity of the Revolving Facility with interest payable monthly at LIBOR plus 3.5%, subject to adjustment based on certain ratios. We expect that the LIBOR rate will be discontinued at some point during 2021 and to work with BHBM to identify a suitable replacement rate and amend our debt agreements to reflect this new reference rate accordingly. We do not believe that the discontinuation of LIBOR as a reference rate in our debt agreements will have a material adverse effect on our financial position or materially affect our interest expense. As of October 3, 2020 and September 28, 2019, borrowings of $9,666,000 (of which $6,300,000 are due on July 31, 2021 - see Note 17 - Subsequent Events of the consolidated financial statements) and $3,366,000, respectively, were outstanding under the Revolving Facility and had a weighted average interest rate of 3.0% and 4.9%, respectively.
Borrowings under the Revolving Facility, which include the promissory notes as discussed in Note 10 of the consolidated financial statements in the aggregate amount of $20,581,000, 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 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. On April 20, 2020, the Company entered into a Payment Suspension Agreement with BHBM which deferred all monthly interest payments through June 1, 2020 and deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates. On June 12, 2020, as a result of the impact of the COVID-19 pandemic on our business, BHBM agreed to relaxed financial covenants through fiscal Q3 2021. In September 2020, the Company made principal payments in the amount of $675,000 that were due on June 1, 2020 that had been previously deferred. The Company was in compliance with all of its financial covenants under the Revolving Facility as of October 3, 2020.
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Paycheck Protection Program Loans
During the year ended October 3, 2020, subsidiaries (the “Borrowers”) of the Company received loan proceeds from several banks (the “Lenders”) in the aggregate amount of $14,995,000 (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) of the CARES Act, which was enacted March 27, 2020. The PPP Loans are evidenced by individual promissory notes of each of the Borrowers (together, the “Notes”) in favor of the Lender, which Notes bear interest at the rate of 1.00% per annum. Funds from the PPP Loans may be used only for payroll and related costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred by a Borrower prior to February 15, 2020 (the “Qualifying Expenses”). Under the terms of the PPP Loans, some or all of the amounts thereunder, including accrued interest, may be forgiven if they are used for Qualifying Expenses as described in and in compliance with the CARES Act. Each Note may be prepaid by the respective Borrower at any time prior to maturity with no prepayment penalties. No payments of principal or interest are due under the Notes until the date on which the amount of loan forgiveness (if any) under the CARES Act for each respective Note is remitted to the Lender and a forgiveness decision is received by the Borrower. Forgiveness applications can be submitted up to 10 months after the end of the related notes covered period (which is defined as 24 weeks after the date of the loan) (the “Deferral Period”) and the ultimate forgiveness decisions can be made by the Lenders up to 60 days after submitting the applications and possibly longer if forgiveness is fully or partially denied and the Borrower appeals the decision. While the Company and each Borrower intends to use the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the PPP Loans will be met under the current guidelines of the CARES Act. Based on all of these factors, we cannot make any assurance that the Company, or any of the Borrowers, will be eligible for forgiveness of the PPP Loans, in whole or in part. Accordingly, all amounts outstanding under the PPP Loans have been classified as long-term in the consolidated balance sheet as of October 3, 2020.
To the extent, if any, that any or all of the PPP Loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the “Maturity Date”), each respective Borrower is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Notes, in such equal amounts required to fully amortize the principal amount outstanding on such Notes as of the last day of the applicable Deferral Period by the applicable Maturity Date. Each Borrower is permitted to prepay its respective Note at any time without payment of any premium.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements. While all of these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or cash flows for the periods presented in this report.
Below are listed certain policies that management believes are critical:
Revenue Recognition
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. We adopted ASC 606 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 financial statements.
We recognize revenues when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest or other customer. Revenues from restaurant operations are presented net of discounts, coupons, employee meals and complimentary meals and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Catering service revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for the service. Revenues from catered events are recognized in income upon satisfaction of the performance obligation (the
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date the event is held) and all customer payments, including nonrefundable upfront deposits, are deferred as a liability until such time. We recognized $7,358,000 and $13,817,000 in catering services revenue for the years ended October 3, 2020 and September 28, 2019, respectively. Unearned revenue which is included in accrued expenses and other current liabilities on the consolidated balance sheets as of October 3, 2020 and September 28, 2019 was $4,050,000 and $4,549,000, respectively.
Revenues from gift cards are deferred and recognized upon redemption. Deferrals are not reduced for potential non-use as we generally have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions in which they are sold. As of October 3, 2020 and September 28, 2019, the total liability for gift cards in the amounts of approximately $227,000 and $203,000, respectively, are included in accrued expenses and other current liabilities in the consolidated balance sheets.
Other revenues include purchase service fees which represent commissions earned by a subsidiary of the Company for providing purchasing services to other restaurant groups, as well as license fees, property management fees and other rentals.
Reclassifications
Certain reclassifications of prior period amounts have been made to conform to the current period presentation. The Company eliminated the presentation of restaurant operating income (loss) as a non-GAAP measure from its consolidated statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The accounting estimates that require management’s most difficult and subjective judgments include allowances for potential bad debts on receivables, the useful lives and recoverability of its assets, such as property and intangibles, fair values of financial instruments and share-based compensation, the realizable value of its tax assets and determining when investment impairments are other-than-temporary. Because of the uncertainty in such estimates, actual results may differ from these estimates.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the evaluation of the fair value and future benefits of long-lived assets, management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants. Periodically it is concluded that certain properties have become impaired based on their existing and anticipated future economic outlook in their respective markets. In such instances, we may impair assets to reduce their carrying values to fair values. Estimated fair values of impaired properties are based on comparable valuations, cash flows and/or management judgment. As a result of the underperformance and increased competition at Clyde Frazier's Wine and Dine, we recorded an impairment charge of $2,857,000 in fiscal 2019 related to this property. No impairment charges were warranted at October 3, 2020.
Recoverability of Investment in New Meadowlands Racetrack (“NMR”)
The carrying value of our investment in Meadowlands Newmark LLC, which has a 63.7% ownership in NMR, is determined using the cost method. 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.
As a result, we performed an assessment of the recoverability of our indirect investment in NMR as of October 3, 2020 which involved critical accounting estimates. These estimates require 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 New Jersey 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 estimate 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.
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As mentioned above, these factors do not change in isolation and, therefore, we do not believe it is practicable or meaningful to present the impact of changing a single factor. Furthermore, if management uses different assumptions or if different conditions occur in future periods, future impairment charges could result.
Leases
We determine if an arrangement contains a lease at inception. An arrangement contains a lease if it implicitly or explicitly identifies an asset to be used and conveys the right to control the use of the identified asset in exchange for consideration. As a lessee, we include operating leases in Operating lease right-of-use assets and Operating lease liabilities in our consolidated balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized upon commencement of the lease based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. Our lease terms may include options to extend or terminate the lease.  Options are included when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Amendments or modifications to lease terms are accounted for as variable lease payments. Leases with a lease term of 12 months or less are accounted for using the practical expedient which allows for straight-line rent expense over the remaining term of the lease. 
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. The new guidance also requires additional disclosures about leases. The Company adopted the new standard on September 29, 2019 (the first day of fiscal year 2020) using the modified retrospective approach, without restating comparative periods for those lease contracts for which we have taken possession of the property as of September 28, 2019. Accordingly, prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840 (“ASC 840”), the accounting standard then in effect. As part of our adoption we elected the "package of practical expedients", as well as the hindsight practical expedient, permitted under the new guidance, which, among other things, allowed the Company to continue utilizing historical classifications of leases as well as allowing us to combine lease and non-lease components of our real estate leases. We also elected to adopt the short-term lease exception for all leases with terms of 12 months or less and account for them using straight-line rent expense over the remaining life of the lease. As a result of the adoption of this guidance, we recorded ROU assets of $62,330,000 and lease liabilities related to our real estate operating leases of $63,943,000. The adoption of this standard did not materially impact retained earnings or our consolidated statement of operations and had no impact on cash flows.
Deferred Income Tax Valuation Allowance
We provide such allowance due to uncertainty that some of the deferred tax amounts may not be realized. Certain items, such as state and local tax loss carryforwards, are dependent on future earnings or the availability of tax strategies. Future results could require an increase or decrease in the valuation allowance and a resulting adjustment to income in such period.
Goodwill and Trademarks
Goodwill and trademarks are not amortized, but are subject to impairment analysis. We assess the potential impairment of goodwill and trademarks annually (at the end of our fourth quarter) and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If we determine through the impairment review process that goodwill or trademarks are impaired, we record an impairment charge in our consolidated statements of operations.
Such impairment analyses for goodwill requires a comparison of the fair value of the Company’s equity to the carrying amount of goodwill since the Company operates in one segment. At October 3, 2020 and September 28, 2019, we performed qualitative assessments of factors to determine whether further impairment testing of goodwill was required. Based on this assessment, no impairment losses were warranted at October 3, 2020 and September 28, 2019. Qualitative factors considered in this assessment included industry and market considerations, overall financial performance and other relevant events, management expertise and stability at key positions. Additional impairment analyses at future dates may be performed to determine if indicators of impairment are present, and if so, such amount will be determined and the associated charge will be recorded to the consolidated statements of operations.
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Our impairment analysis for trademarks consists of a comparison of the fair value to the carrying value of the assets. This comparison is made based on a review of historical, current and forecasted sales and profit levels, as well as a review of any factors that may indicate potential impairment. As of December 29, 2018, the Company recorded an impairment charge of $721,000 related to its Durgin-Park trademark as discussed above. For the years ended October 3, 2020 and September 28, 2019, our impairment analysis did not result in any other charges related to trademarks.
Stock-Based Compensation
The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense over the applicable vesting period using the straight-line method. Excess income tax benefits related to share-based compensation expense that must be recognized directly in equity are considered financing rather than operating cash flow activities.
The fair value of each of the Company’s stock options is estimated on the date of grant using a Black-Scholes option-pricing model that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. The Company issues new shares upon the exercise of employee stock options.
Recently Adopted and Issued Accounting Standards
See Note 1 of Notes to Consolidated Financial Statements for a description of recent accounting pronouncements, including those adopted in fiscal 2020 and the expected dates of adoption and the anticipated impact on the consolidated financial statements.
Recent Developments
See Note 17 of Notes to Consolidated Financial Statements for a description of recent developments that have occurred subsequent to October 3, 2020.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements are included in this report immediately following Part IV.
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of October 3, 2020 (the end of the period covered by this report), management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at the end of such period, our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
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Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of October 3, 2020. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U. S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of October 3, 2020 based upon the criteria set forth in Internal Control — Integrated Framework issued by the 2013 Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that our internal control over financial reporting was effective as of October 3, 2020.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the permanent exemption of the SEC that permits us to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
As a result of governmental imposed closures of all of our facilities due to the COVID-19 pandemic, we have had to make changes to the operating methods of some of our internal controls. For example, moving from manual sign-offs / in-person meetings to electronic sign-offs and electronic communications such as email and telephonic / or video conference due to out-of-office working arrangements. However, the design of our internal control framework/objectives over financial reporting is unchanged and the Company does not believe that these changes have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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Item 9B. Other Information
None.
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PART III
Item 10.    Directors, Executive Officers and Corporate Governance
Information relating to our directors and executive officers is incorporated by reference to the definitive proxy statement for our 2020 annual meeting of stockholders to be filed with the Securities and Exchange Commission (the “SEC”) pursuant to Regulation 14A no later than 120 days after the end of the fiscal year covered by this form (the “Proxy Statement”). Information relating to compliance with Section 16(a) of the Exchange Act is incorporated by reference to the Proxy Statement.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy is available free of charge through our Internet website, www.arkrestaurants.com, under the “Investors--Corporate Governance” caption.
Item 11.    Executive Compensation
The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed no later than 120 days after October 3, 2020.
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed no later than 120 days after October 3, 2020.
Item 13.    Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed no later than 120 days after October 3, 2020.
Item 14.    Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the Proxy Statement which will be filed no later than 120 days after October 3, 2020.
32


PART IV

Item 15.    Exhibits and Financial Statement Schedules
(a)(1)Financial Statements:Page
F-1
at October 3, 2020 and September 28, 2019
F-2
years ended October 3, 2020 and September 28, 2019
F-3
years ended October 3, 2020 and September 28, 2019
F-4
years ended October 3, 2020 and September 28, 2019
F-5
F-6
(2)Financial Statement Schedules
None.
(3)Exhibits:
The exhibits required by Item 601 of Regulation S-K and filed herewith are listed in the Exhibit List immediately preceding the exhibits.





























33




Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Ark Restaurants Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and Subsidiaries (the “Company”) as of October 3, 2020 and September 28, 2019, and the related consolidated statements of operations, changes in equity, and cash flows for each of the years in the two-year period ended October 3, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 3, 2020 and September 28, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended October 3, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ CohnReznick LLP
We have served as the Company’s auditors since 2004.
Jericho, New York
December 22, 2020
F-1


ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)

October 3,
2020
September 28,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes $567 at October 3, 2020 and $170 at September 28,
    2019 related to VIEs)
$16,886 $7,177 
Accounts receivable (includes $162 at October 3, 2020 and $219 at September 28, 2019
    related to VIEs)
1,738 2,621 
Employee receivables385 414 
Inventories (includes $27 at October 3, 2020 and $41 at September 28, 2019 related to
    VIEs)
2,553 2,222 
Prepaid and refundable income taxes (includes $274 at October 3, 2020 and $254 at
    September 28, 2019 related to VIEs)
2,870 254 
Prepaid expenses and other current assets (includes $13 at October 3, 2020 and $12 at
    September 28, 2019 related to VIEs)
2,469 1,021 
Total current assets26,901 13,709 
FIXED ASSETS - Net (includes $241 at October 3, 2020 and $236 at September 28, 2019
    related to VIEs)
37,682 47,781 
OPERATING LEASE RIGHT-OF-USE ASSETS - Net (includes $2,658 at October 3, 2020
    related to VIEs)
54,191 — 
INTANGIBLE ASSETS - Net49 303 
GOODWILL15,570 15,570 
TRADEMARKS3,720 3,720 
DEFERRED INCOME TAXES5,897 4,106 
INVESTMENT IN AND RECEIVABLE FROM NEW MEADOWLANDS RACETRACK6,874 6,821 
OTHER ASSETS (includes $82 at October 3, 2020 and September 28, 2019 related to
    VIEs)
2,432 2,642 
TOTAL ASSETS$153,316 $94,652 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable - trade (includes $119 at October 3, 2020 and $65 at September 28,
    2019 related to VIEs)
$2,329 $3,549 
Accrued expenses and other current liabilities (includes $331 at October 3, 2020 and
    $440 at September 28, 2019 related to VIEs)
12,688 10,672 
Accrued income taxes 285 
Dividend payable 875 
Current portion of operating lease liabilities (includes $226 at October 3, 2020 related to
    VIEs)
6,117 — 
Current portion of notes payable9,001 2,701 
Total current liabilities30,135 18,082 
OPERATING LEASE DEFERRED CREDIT (includes $(30) at September 28, 2019 related
    to VIEs)
— 10,077 
OPERATING LEASE LIABILITIES, LESS CURRENT PORTION (includes $2,442 at
    October 3, 2020 related to VIEs)
49,960 — 
NOTES PAYABLE, LESS CURRENT PORTION, net of deferred financing costs (includes
    $723 at October 3, 2020 related to VIEs)
36,068 23,786 
TOTAL LIABILITIES116,163 51,945 
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock, par value $0.01 per share - authorized, 10,000 shares; issued and
    outstanding, 3,502 shares at October 3, 2020 and 3,499 shares at September 28, 2019
35 35 
Additional paid-in capital13,503 13,277 
Retained earnings22,989 28,552 
Total Ark Restaurants Corp. shareholders’ equity36,527 41,864 
NON-CONTROLLING INTERESTS626 843 
TOTAL EQUITY37,153 42,707 
TOTAL LIABILITIES AND EQUITY$153,316 $94,652 
See notes to consolidated financial statements.
F-2


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

Year Ended
October 3,
2020
September 28,
2019
REVENUES:
Food and beverage sales$104,062 $159,125 
Other revenue2,428 3,229 
Total revenues106,490 162,354 
COSTS AND EXPENSES:
Food and beverage cost of sales28,583 43,435 
Payroll expenses40,975 56,675 
Occupancy expenses15,391 17,413 
Other operating costs and expenses14,757 20,378 
General and administrative expenses10,160 12,011 
Depreciation and amortization4,056 5,233 
Loss on termination of lease364  
Loss on closure of Durgin-Park 1,106 
Impairment loss from write-down of long-lived assets 2,857 
Total costs and expenses114,286 159,108 
OPERATING INCOME (LOSS)(7,796)3,246 
OTHER (INCOME) EXPENSE:
Interest expense1,421 1,437 
Interest income(126)(61)
Other income(88) 
Total other expense, net1,207 1,376 
INCOME (LOSS) BEFORE BENEFIT FOR INCOME TAXES(9,003)1,870 
Benefit for income taxes(4,385)(591)
CONSOLIDATED NET INCOME (LOSS)(4,618)2,461 
Net (income) loss attributable to non-controlling interests(70)215 
NET INCOME (LOSS) ATTRIBUTABLE TO ARK RESTAURANTS CORP.$(4,688)$2,676 
NET INCOME (LOSS) PER ARK RESTAURANTS CORP. COMMON SHARE:
Basic$(1.34)$0.77 
Diluted$(1.34)$0.76 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic3,500 3,479 
Diluted3,500 3,531 
See notes to consolidated financial statements.
F-3


ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED OCTOBER 3, 2020 AND SEPTEMBER 28, 2019
(In Thousands, Except Per Share Amounts)

Common StockAdditional
Paid-In
Capital
Retained
Earnings
Total Ark
Restaurants
Corp.
Shareholders’Equity
Non-
controlling
Interests
Total
Equity
SharesAmount
BALANCE - September 29, 20183,470 $35 $12,897 $29,364 $42,296 $1,440 $43,736 
Net income (loss)— — — 2,676 2,676 (215)2,461 
Exercise of stock options41 — 503 — 503 — 503 
Purchase and retirement of
treasury shares
(12)— (235)— (235)— (235)
Stock-based compensation— — 112 — 112 — 112 
Distributions to non-controlling
interests
— — — — — (382)(382)
Dividends paid and accrued -
    $1.00 per share
— — — (3,488)(3,488)— (3,488)
BALANCE - September 28, 20193,499 35 13,277 28,552 41,864 843 42,707 
Net income (loss)— — — (4,688)(4,688)70 (4,618)
Exercise of stock options3 — 50 — 50 — 50 
Stock-based compensation— — 176 — 176 — 176 
Distributions to non-controlling
interests
— — — — — (287)(287)
Dividends paid - $0.25 per share
— — — (875)(875)— (875)
BALANCE - October 3, 20203,502 $35 $13,503 $22,989 $36,527 $626 $37,153 
See notes to consolidated financial statements.
F-4


ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

Year Ended
October 3,
2020
September 28,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income (loss)$(4,618)$2,461 
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in)
operating activities:
Stock-based compensation176 112 
Asset impairment on closure of Durgin-Park 1,067 
Impairment loss from write-down of long-lived assets 2,857 
Loss on termination of lease364  
Deferred income taxes(1,791)(1,118)
Accrued interest on note receivable from NMR(53)(61)
Depreciation and amortization4,056 5,233 
Amortization of operating lease assets584  
Amortization of deferred financing costs51 35 
Operating lease deferred credit(197)(499)
Changes in operating assets and liabilities:
Accounts receivable883 831 
Inventories(331)(48)
Prepaid, refundable and accrued income taxes(2,901)752 
Prepaid expenses and other current assets(1,448)513 
Other assets111 35 
Accounts payable - trade(1,220)(1,475)
Accrued expenses and other current liabilities1,806 (80)
Net cash provided by (used in) operating activities(4,528)10,615 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets(2,486)(3,419)
Loans and advances made to employees(97)(224)
Payments received on employee receivables126 196 
Interest payments received from NMR 276 
Purchase of JB's on the Beach, net of cash acquired (25)
Net cash used in investing activities(2,457)(3,196)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable(2,701)(1,608)
Borrowings under credit facility6,300 650 
Repayments of borrowings under credit facility (650)
Proceeds from PPP Loans14,995  
Payment of debt financing costs(63)(51)
Dividends paid(1,750)(3,481)
Proceeds from issuance of stock upon exercise of stock options50 268 
Distributions to non-controlling interests(137)(382)
Net cash provided by (used in) financing activities16,694 (5,254)
NET INCREASE IN CASH AND CASH EQUIVALENTS9,709 2,165 
CASH AND CASH EQUIVALENTS, Beginning of year7,177 5,012 
CASH AND CASH EQUIVALENTS, End of year$16,886 $7,177 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest$1,397 $1,420 
Income taxes$219 $732 
Non-cash investing activities:
Landlord provided fixed assets$ $8,653 
Non-cash financing activities:
Note payable in connection with the purchase of JB's on the Beach$ $7,000 
Refinancing of credit facility borrowings to term notes$ $3,200 
Accrued dividend$ $875 
Accrued distributions to non-controlling interests$150 $ 
See notes to consolidated financial statements.
F-5


ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of October 3, 2020, Ark Restaurants Corp. and Subsidiaries (the “Company”) owned and operated 20 restaurants and bars, 17 fast food concepts and catering operations, exclusively in the United States, that have similar economic characteristics, nature of products and service, class of 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.
The Company operates five restaurants in New York City, two in Washington, D.C., five in Las Vegas, Nevada, three in Atlantic City, New Jersey, three in Florida and two on the gulf coast of Alabama. The Las Vegas operations include four restaurants within the New York-New York Hotel & Casino Resort and operation of the hotel’s room service, banquet facilities, employee dining room and six food court concepts and one restaurant within the Planet Hollywood Resort and Casino. In Atlantic City, New Jersey, the Company operates a restaurant and a bar in the Resorts Atlantic City Hotel and Casino and a restaurant in the Tropicana Hotel and Casino. The operation at the Foxwoods Resort Casino consists of one fast food concept. The Florida operations include The Rustic Inn in Dania Beach, Shuckers in Jensen Beach, JB's on the Beach in Deerfield Beach, and the operation of four fast food facilities in Tampa and six fast food facilities in Hollywood, each at a Hard Rock Hotel and Casino. In Alabama, the Company operates two Original Oyster Houses, one in Gulf Shores and one in Spanish Fort.
COVID-19 PANDEMIC — On March 11, 2020, in light of the rapid spread of the novel Coronavirus (“COVID-19” or "Coronavirus"), the World Health Organization declared the COVID-19 outbreak to be a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations. Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home" directives, and mandatory closure of all of our locations.
As a result of state and local governments lifting “stay at home” orders and mandatory shut-down requirements from May through August 2020, the Company has reopened all of its properties, with the exception of Thunder Grill in Washington, D.C., at varying levels of limited capacity as allowed by federal, state and local governments (see Note 17 - Subsequent Events).
Due to the impact of the COVID-19 pandemic, during the year ended October 3, 2020, subsequent to reopening after initial shut-downs, the Company has temporarily closed several restaurants, typically for three to seven days. The Coronavirus has caused unprecedented business disruptions, especially in the hospitality industry. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted.
As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows, and has a working capital deficiency of $3,234,000 as of October 3, 2020, all of which could negatively impact its ability to meet its obligations over the next 12 months. However, we believe that our existing cash balances, which include the proceeds from Paycheck Protection Program loans (see Note 10 - Notes Payable) and actions taken by management, set out below and otherwise, will be sufficient to meet our liquidity and capital spending requirements through December 23, 2021.
In response to the business disruption and liquidity concerns caused by the COVID-19 pandemic, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next 12 months:
While restaurants were closed or continue to be closed, we furloughed all hourly employees and approximately 95% of salaried restaurant management personnel, while enacting salary reductions for all remaining restaurant management personnel.
As restaurants re-opened, restaurant management salaries were restored to 70% of pre-pandemic amounts. If a location produced sustained cash flow, restaurant management salaries were restored to 100% of pre-pandemic amounts.
F-6


Initially reduced the pay of all corporate and administrative staff by 50% to 75% and senior management salaries by 75% to 95%. As of October 3, 2020, most corporate salaries have been restored to 65% of pre-pandemic levels. In addition, the Board waived its fees for the balance of 2020.
Entered into a Payment Suspension Agreement with our bank which deferred aggregate principal payments of $675,000 due on June 1, 2020 to the respective loan maturity dates and an agreement to extend the maturity dates of our revolving credit facility (see Note 10 - Notes Payable). In addition, the bank agreed to relaxed financial covenants through fiscal Q3 2021.
Canceled the payment of the $0.25 dividend declared on March 2, 2020.
Suspended future dividend payments until such time as the Board deems appropriate to reinstate.
Canceled or delayed all non-essential capital expenditures.
Suspended the vast majority of lease payments while our restaurants were closed as a result of government mandated shutdowns, and attempted to negotiate rent concessions, abatements and deferrals with these landlords to reduce the lease payments. While some landlords have agreed to concessions, several negotiations are still ongoing as of the date of this filing and we will attempt to obtain further concessions through April 2021 at many of our leased properties. However, there can be no assurance that the Company will be successful in obtaining the relief it is seeking.
Certain Company subsidiaries applied for and received a total of approximately $15.0 million of loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020.
Utilized additional provisions of the CARES Act to obtain tax savings as well as the deferral of our portion of social security taxes to future years.
Due to the rapid development and fluidity of this situation, management cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s consolidated financial condition, liquidity, future results of operations, suppliers, industry, and workforce and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The disruption in operations has led the Company to consider the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others. In addition, we cannot predict how soon we will be able to reopen any or all of our restaurants at full capacity or whether they will be required to close again in the future, as these decisions will depend primarily on the actions of a number of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our restaurants, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. If these disruptions continue, the Company expects a continued material negative impact on its consolidated financial position, future results of operations and liquidity. The extent of such negative impact will be determined, in part, by the longevity and severity of the pandemic.
Basis of Presentation — The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States of America (“GAAP”). The Company’s reporting currency is the United States dollar.
Reclassifications — Certain reclassifications of prior period amounts have been made to conform to the current period presentation. The Company eliminated the presentation of restaurant operating income (loss) as a non-GAAP measure from its consolidated statements of operations.
Accounting Period — The Company’s fiscal year ends on the Saturday nearest September 30. The fiscal years ended October 3, 2020 and September 28, 2019 included 53 and 52 weeks, respectively.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The accounting estimates that require management’s most difficult and subjective judgments include projected cash flow, allowances for potential bad debts on receivables, assumptions regarding discount rates related to lease accounting, the useful lives and recoverability of its assets, such as property and intangibles, fair values of financial instruments and share-
F-7


based compensation, the realizable value of its tax assets and determining when investment impairments are other-than-temporary. Because of the uncertainty in such estimates, actual results may differ from these estimates.
Principles of Consolidation The consolidated 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. Also included in the consolidated financial statements are certain variable interest entities (“VIEs”). All significant intercompany balances and transactions have been eliminated in consolidation.
Non-Controlling Interests Non-controlling interests represent capital contributions, income and loss attributable to the shareholders of less than wholly-owned and consolidated entities.
Seasonality — The Company has substantial fixed costs that do not decline proportionally with sales. 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 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 balance sheets.
Concentrations of Credit Risk — Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company reduces credit risk by placing its cash and cash equivalents with major financial institutions with high credit ratings. At times, such amounts may exceed Federally insured limits. Accounts receivable are primarily comprised of normal business receivables, such as credit card receivables, that are collected in a short period of time and amounts due from the hotel operators where the Company has a location, and are recorded upon satisfaction of the performance obligation. The Company reviews the collectability of its receivables on an ongoing basis, and provides for an allowance when it considers the counterparty 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 October 3, 2020, the Company had accounts receivable balances due from two hotel operators totaling 46% of total accounts receivable. As of September 28, 2019, the Company had accounts receivable balances due from one hotel operator totaling 34% of total accounts receivable.
For the years ended October 3, 2020 and September 28, 2019, the Company made purchases from one vendor that accounted for 11% and 12% of total purchases, respectively.
As of October 3, 2020, all debt outstanding, other than Paycheck Protection Program loans, is with one lender (see Note 10 – Notes Payable).
Inventories — Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist of food and beverages, merchandise for sale and other supplies.
Fixed Assets Fixed assets are stated at cost less accumulated depreciation and amortization. Depreciation is determined using the straight-line method over the estimated useful lives of the assets. Estimated lives range from three to seven years for furniture, fixtures and equipment and up to 40 years for buildings and related improvements. Amortization of improvements to leased properties is computed using the straight-line method based upon the initial term of the applicable lease or the estimated useful life of the improvements, whichever is less, and ranges from 5 to 30 years. For leases with renewal periods at the Company’s option, if failure to exercise a renewal option imposes an economic penalty to the Company, management may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of appropriate estimated useful lives. Routine expenditures for repairs and maintenance are charged to expense when incurred. Major replacements and improvements are capitalized. Upon retirement or disposition of fixed assets, the cost and related accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is recognized in the consolidated statements of operations.
F-8


The Company includes in construction in progress, improvements to restaurants that are under construction or are undergoing substantial renovations. Once the projects have been completed, the Company begins depreciating and amortizing the assets. Start-up costs incurred during the construction period of restaurants, including rental of premises, training and payroll, are expensed as incurred.
Intangible Assets — Intangible assets consist principally of purchased leasehold rights, operating rights and covenants not to compete. Costs associated with acquiring leases and subleases, principally purchased leasehold rights, and operating rights have been capitalized and are being amortized on the straight-line method based upon the initial terms of the applicable lease agreements. Covenants not to compete arising from restaurant acquisitions are amortized over the contractual period, typically five years.
Long-Lived and Right-Of-Use Assets — Long-lived assets, such as property and plant and equipment subject to amortization, and right-of-use assets ("ROU assets") are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. Various factors including estimated future sales growth and estimated profit margins are included in this analysis.
The Company considers a triggering event related to long-lived assets or ROU assets in a net asset position to have occurred related to a specific restaurant if the restaurant’s cash flows for the last 12 months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Additionally, the Company considers a triggering event related to ROU assets to have occurred related to a specific lease if the location has been subleased and future estimated sublease income is less than current lease payments. If the Company concludes that the carrying value of certain long-lived and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the long-lived or ROU assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material.
Based on the results of this analysis, the Company recognized an impairment charge of $364,000 related to long-lived assets and ROU assets during the year ended October 3, 2020 (see Note 4 – Recent Restaurant Dispositions). Given the inherent uncertainty in projecting results of restaurants under the current circumstances, particularly taking into account the projected impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis. For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

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

Due to the recent impact of the COVID-19 pandemic to the global economy, including but not limited to, the volatility of the Company's stock price, temporary closure of the Company's restaurants and the challenging environment for the restaurant industry in general, the Company determined that there were indicators of potential impairment of its goodwill and trademarks during the year ended October 3, 2020. As such, the Company performed a qualitative and quantitative assessment for both goodwill and its trademarks and concluded that the fair value of these assets exceeded their carrying values. Accordingly, the Company did not record any impairment to its goodwill or trademarks during the year ended October 3, 2020. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

As of December 29, 2018, the Company recorded an impairment charge of $721,000 related to its Durgin-Park trademark (see Note 4 - Recent Restaurant Dispositions). For the years ended October 3, 2020 and September 28, 2019, our impairment analysis did not result in any other charges related to trademarks.
F-9


Investments – Each reporting period, the Company reviews its investments in equity and debt securities, except for those classified as trading, to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of such investment. When such events or changes occur, the Company evaluates the fair value compared to cost basis in the investment. For investments in non-publicly traded companies, management’s assessment of fair value is based on valuation methodologies including discounted cash flows, estimates of sales proceeds, and appraisals, as appropriate. The Company considers the assumptions that it believes hypothetical marketplace participants would use in evaluating estimated future cash flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies.
In the event the fair value of an investment declines below the Company’s cost basis, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded. Management’s assessment as to the nature of a decline in fair value is based on, among other things, the length of time and the extent to which the market value has been less than the cost basis; the financial condition and near-term prospects of the issuer; and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Leases — We determine if an arrangement contains a lease at inception. An arrangement contains a lease if it implicitly or explicitly identifies an asset to be used and conveys the right to control the use of the identified asset in exchange for consideration. As a lessee, we include operating leases in Operating lease right-of-use assets and Operating lease liabilities in our consolidated balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized upon commencement of the lease based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. Our lease terms may include options to extend or terminate the lease.  Options are included when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Amendments or modifications to lease terms are accounted for as variable lease payments. Leases with a lease term of 12 months or less are accounted for using the practical expedient which allows for straight-line rent expense over the remaining term of the lease. 

Revenue Recognition — The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest or other customer. Revenues from restaurant operations are presented net of discounts, coupons, employee meals and complimentary meals and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Catering service revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for the service. Revenues from catered events are recognized in income upon satisfaction of the performance obligation (the date the event is held). All customer payments, including nonrefundable upfront deposits, are deferred as a liability until such time. The Company recognized $7,358,000 and $13,817,000 in catering services revenue for the years ended October 3, 2020 and September 28, 2019, respectively. Unearned revenue which is included in accrued expenses and other current liabilities on the consolidated balance sheets as of October 3, 2020 and September 28, 2019 was $3,661,000 and $4,549,000, respectively.
Revenues from gift cards are deferred and recognized upon redemption. Deferrals are not reduced for potential non-use as we generally have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions in which they are sold. As of October 3, 2020 and September 28, 2019, the total liability for gift cards in the amounts of approximately $227,000 and $203,000, respectively, are included in accrued expenses and other current liabilities in the consolidated balance sheets.
Other revenues include purchase service fees which represent commissions earned by a subsidiary of the Company for providing services to other restaurant groups, as well as license fees, property management fees and other rentals.
Occupancy Expenses Occupancy expenses include rent, rent taxes, real estate taxes, insurance and utility costs.
Defined Contribution Plan The Company offers a defined contribution savings plan (the “Plan”) to all of its full-time employees. Eligible employees may contribute pre-tax amounts to the Plan subject to the Internal Revenue Code limitations. Company contributions to the Plan are at the discretion of the Board of Directors. During the years ended October 3, 2020 and September 28, 2019, the Company did not make any contributions to the Plan.
Income Taxes Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to the temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
F-10


Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company has recorded a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.
Non-controlling interests relating to the income or loss of consolidated partnerships includes no provision for income taxes as any tax liability related thereto is the responsibility of the individual minority investors.
Income Per Share of Common Stock Basic net income per share is calculated on the basis of the weighted average number of common shares outstanding during each period. Diluted net income per share reflects the additional dilutive effect of potentially dilutive shares (principally those arising from the assumed exercise of stock options). The dilutive effect of stock options is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, if the average market price of a share of common stock increases above the option’s exercise price, the proceeds that would be assumed to be realized from the exercise of the option would be used to acquire outstanding shares of common stock. The dilutive effect of awards is directly correlated with the fair value of the shares of common stock.
Stock-based Compensation Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation at the grant date based on the estimated fair value of the award and recognize the cost (net of estimated forfeitures) as compensation expense on a straight-line basis over the requisite service period. Upon exercise of options, all excess tax benefits and tax deficiencies resulting from the difference between the deduction for tax purposes and the stock-based compensation cost recognized for financial reporting purposes are included as a component of income tax expense.
Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. The new guidance also requires additional disclosures about leases. The Company adopted the new standard on September 29, 2019 (the first day of fiscal year 2020) using the modified retrospective approach, without restating comparative periods for those lease contracts for which we have taken possession of the property as of September 28, 2019. Accordingly, prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840 (“ASC 840”), the accounting standard then in effect. As part of our adoption we elected the "package of practical expedients", as well as the hindsight practical expedient, permitted under the new guidance, which, among other things, allowed the Company to continue utilizing historical classifications of leases as well as allowing us to combine lease and non-lease components of our real estate leases. We also elected to adopt the short-term lease exception for all leases with terms of 12 months or less and account for them using straight-line rent expense over the remaining life of the lease. As a result of the adoption of this guidance, we recorded ROU assets of $62,330,000 and lease liabilities related to our real estate operating leases of $63,943,000. The adoption of this standard did not materially impact retained earnings or our consolidated statement of operations and had no impact on cash flows.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under this ASU, the guidance on share-based payments to non-employees would be aligned with the requirements for share-based payments granted to employees, with certain exceptions. The Company adopted this guidance in the first quarter of fiscal 2020.  Such adoption did not have a material impact on our consolidated financial statements.
F-11


New Accounting Standards Not Yet Adopted — In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will adopt this guidance in the first quarter of fiscal 2021 does not expect it to have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein. The Company is currently evaluating the effect of adopting ASU 2019-12 to determine the impact on the Company’s consolidated financial position and results of operations.
2. CONSOLIDATION OF 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:
October 3,
2020
September 28,
2019
(in thousands)
Cash and cash equivalents$567 $170 
Accounts receivable162 219 
Inventories27 41 
Prepaid and refundable income taxes274 254 
Prepaid expenses and other current assets13 12 
Due from Ark Restaurants Corp. and affiliates (1)419 392 
Fixed assets - net241 236 
Operating lease right-of-use assets - net2,658