Greetings, and welcome to the Ark Restaurants Fourth Quarter and Full Year 2016 Results Conference. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bob Stewart, President and Chief Financial Officer. Thank you. You may begin.

Thank you, operator. Good morning, and thank you for joining us on our conference call for the fourth fiscal quarter and full year ended October 1, 2016. With me on the call today is Michael Weinstein, our Chairman and CEO; and Vinny Pascal, our Chief Operating Officer. For those of you who have not yet obtained the copy of our press release, it was issued over the newswire yesterday and is available on our website. To review the full text of that press release along with the associated financial tables, please go to our homepage at www.arkrestaurants.com. Before we begin, however, I'd like to read the safe harbor statement. I need to remind everyone that part of our discussion this afternoon will include forward-looking statements and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition. I will now turn the call over to Michael.

Hi, everybody. If you read the release, we're comparing a 52-week year against a 53-week year. That's somewhat important. It does excuse the performance of the company in the fourth quarter, which was dismal in terms of same-store sales. We have been fighting all year minimum wage increases. We have instituted some changes in the way we charge customers. There were slight price increases at our restaurants, menu price increases. We did not think we had that much elasticity to raise prices to make up for the full difference that minimum wage cost us, which was across the board some $2 million. We made inroads in that by starting to charge taxes, sales taxes at our bars. Previously, customers would just pay a flat rate at the bar, it was from the old days where you had to make change, and we didn't want to be giving pennies and nickels to people. But since 90% of our people now pay by credit card, we felt that that was something we could pass on to the customer sales - to the additional sales tax. So that helped us a little bit. We raised the administrative charge that we pass on in our events and catering department. But all in all, it was excruciating to try to figure out how to make up $2 million, because quite honestly, we went into this fairly efficient with payroll. The biggest think we were able to do in terms of minimum wage was just to eliminate as much over time as we possibly could. Yet we do have some legacy employees, a lot of them who depend upon over time. So even that was difficult. So payroll became a big issue throughout the year. The first three quarters, our sales were holding up. We had…

[Operator Instructions] Our first question comes from the line of Bruce Geller with DGHM. Please proceed.

Hi Good morning guys.

Hi Bruce, how are you?

Good thanks. Glad to hear things have turned around so far in the current quarter. Was that 7% negative comp, is that apples-to-apples or is that related to the 13 weeks versus 14 weeks?

Yes, that includes an additional week last year. So when you're looking at it, you're comparing 14 weeks to 13 weeks this year.

So it's not nearly as...

No, no.

…as dismal as it might imply. What were the apples-to-apples comp be, if you could come up with something like that?

About 2%. Probably down, somewhere along that line, 2% to 3%.

Got it. Okay. Can you just kind of go through some of the trends by market? And then also, to the extent you can, just provide some framework for the coming year in terms of EBITDA, because I know you've had a lot of moving parts, you had this nice acquisition, which should be additive, if you could just layout somewhat of a framework that might be helpful?

It's Michael, Bruce. There are - certainly, New York had a very strong 11 weeks. And we think we're really well positioned in the market. Again, we made minimal, minimal price increase changes on our menus. If you look at what's going on around the city, people have in response to minimum wage, raised menu prices significantly. So, we think we have this sort of umbrella of safety with our menu prices. We're not hearing any complaints about our prices. So, we think we're in very good shape in New York. In Washington, D.C., we are, as of January 2, starting to refurbish Sequoia. That will hurt us somewhat in the second fiscal quarter, because we're going to be carrying payroll, we're not going to be carrying rent. But we did this in conjunction with signing a new lease for 15 years at a very fair rent. Sequoia in Washington has roughly 1,100 seats. It's an old facility. It's been doing well. We think if we do something to core basis that brings it into current design and edgy design, that, that facility has the ability to increase the sales dramatically, especially with events and the way we're reconfiguring it to be more adaptable to large events. So, we'll be out of business there between January and April 15, roughly, but we think what we're building is very exciting. So, we'll take a little bit of hit this year in the second fiscal quarter in Sequoia. Thunder Grill is doing well. That's our only other restaurant now in Washington. New Jersey, we're doing very, very well, despite - and I'll address Atlantic City and the Meadowlands in my closing comments or if somebody wants to ask question about it. But New Jersey, we're doing really well. We don't have much…

Thank you.

My pleasure Bruce.

Our next question comes from the line of Alan Goldberg, Private Investor. Please proceed with your question.

Good morning gentlemen. I am a private investor, but I'm not a novice investor. I have been involved in your stock for several years. And I have been accumulating more of it. I just want to tell you, Michael, if I may call you that.

Please.

I live in Palm Beach and I am the one that travels 70 miles to get down there, more than once, more than once, many times. And there was no question, none, zero, that our restaurant down there is going to just explode once this pain in the - I don't want to use the word pain in the [indiscernible] on the telephone, but once the pain in the [indiscernible] of fixing all those streets and roads is done, there is just no question what is going to happen. So, I just wanted to tell you, I'm very pleased. I am not a novice investor. I ran a hedge fund, and I was senior officer of a major brokerage firm. So, I'm not new to this. And I am extremely pleased with the way the business is being run. Sort of a question that you can't answer though, I don't think, with the capitalization of the company and the selling at half a sales or less and profitable, I know you've been trying to buy back stock. And your stock is as difficult to buy as any I have seen in the last - my last 50 years in the business. And you can't answer this, but you can just hear what I'm asking. Being as closely controlled as it is, has any - does the board talk at all about taking the company private or have any larger companies reached out to you to talk to you about the future? By the way, I'm very pleased. I'm very pleased. I'm going to - I'm just thrilled with the way you're doing things.

Well, thank you very much. It's truly appreciated. I can address those issues with you. But strangely enough, just anecdotally, and I don't know if everybody has the time for this, I got a call from a Professor at the University of Michigan, who was - who runs an investment class, and he called me up and he said he had - this was yesterday. He said he is coming to New York next week, would like to have lunch with me, because he taught a class on, I guess, private equity investments and how private equity funds work. And he said go out - to students, he said he's got a very smart group of kids, he said go out there and find companies that should be private. He said, ‘You were at the top of the list.’

Well, I don't know if you can still hear me, but very honestly in...

I can.

In my previous life, I would have said, my God, this is the opportunity I've been waiting for. And I must tell you honestly, I'm going to be 74 next week, and I've done this before, but I just can't believe that you - what's going on. I think you're very - of course, that's my opinion, not yours. So you're - my opinion is that you're very, very undervalued.

Yes. We have a problem here in terms of taking the company private. And number one is, I'm the same age as you. And I - you sound very vigorous. I feel very vigorous. I'm loving walking to my office every day. It's an appropriate time to talk about the Meadowlands. We really do believe even though the referendum was shot down this year, we put up no defense in terms of marketing to try to get the referendum passed. The polling was very bad in the first place. We would have to - not us, the group that we were involved with would have to - have spent $35 million, and the outcome of the vote would be uncertain. What we did not like about the referendum was the fact that it required us to have an Atlantic City licensee as an operator, which would have been highly dilutive because that operator by virtue of legislation we’d own 50% of the casino, if it was voted positively and placed at the Meadowlands. So, we thought that the outcome of the referendum even with the significant marketing effort was uncertain, and we didn't like the terms of the referendum. And we think with the new Governor and a new President of the legislature, Senate in New Jersey, that, that outcome could be much more beneficial for us when the referendum is reintroduced, and we think that will happen in two years. There is no question that everybody believes that the site for a casino in the North away from Atlantic City will be the Meadowlands racetrack. We've spoken to all the casino operators in Atlantic City and Vegas, quite honestly who say this is the only site that makes sense. So we think it makes sense. One of the problems in going private is, how do you put a value on the Meadowlands. So, we have an investment of some $5 million in it. And the last thing I want to do is try to put a value on something that either is going to happen or not going to happen. And $5 million, if it happens, is very, very cheap price because not only do we own a piece of the, what we think would be a significant revenue generator, but we will also have the exclusive on all food and beverage with the exception of a Hard Rock Cafe of Hard Rock, who is a partner in this venture, chooses to put a Hard Rock Cafe in. So in a way, going private is very unfair to our other shareholders. We think that if this happens, it's a very big pay day, and there is no way we can evaluate this piece of our business. So that's one part of the discussion that sort of negates going private. The second part is, quite honestly, my age, Vinny's age, Bob is our President. He is a young man...

But I thought you've just agreed with me that we're both young men, sort of.

We're very rigorous, but I don't want to sneeze one day and have a subordinated lender come to me and say, hey...

I was just being a flippant. I understand completely. Go on please. I'm sorry.

So those are the things, those are the parameters that are sort of controlling the fact that we're happy being a public company. We're running this - quite honestly, I know this sounds self-serving, but we look at this as what are we doing for the 50-share stockholder? If I could benefit him, I benefit myself, I benefit Vinny, I benefit Bob, I benefit all shareholders. And going private is - we’ll be above that 50-share holder, but it's not the play we think we can give him if we stay public and keep doing what we're doing for the next two years. The big shift in this business has been not having envisioned what real estate prices would do, especially in New York and Washington, D.C., is to go out and own our own properties. And we're shifting our focus to try and find some very interesting real estate acquisitions that have operating businesses - restaurant businesses that are doing well, that we can buy at a very good price. The Rustic shareholder is no longer alive. So, I can - I could say this without having to worry that he is on the phone. We bought that business for $7.5 million with the profit, you know that property, Adam.

Would you like to sell it?

Right. So when we bought it, we said, hey, this is earning $1 million to $1.5 million, probably $1.5 million. We can improve that. There was no other buyer for it. It was a 92-year-old owner and his family. If he was going to sell it locally and if there are restaurant buyers locally, he was going to sell it for a small amount of cash and a lot of notes, he didn't have time to wait to collect the notes. Landry's or other acquisitive companies didn't really want a one-off. So they weren't going to buy it and when we stepped in, and we have the $7.5 million in cash. He was asking much more, but we paid $7.5 million for it. We thought the menu was very underpriced. We raised prices when we bought it. Lo and behold the second year we owned it, we have the $3.4 million EBITDA or operating profit there, $1.5 million. Now, that's gone back down to $7 million to $6 million with the detour, but the point is, if I said to you, Adam, give me $10 million, I will give you $1 million in rent for the next 20 years, you know...

You know anybody in the world would grab that.

Yes. So the same situation is true in Shuckers. The same situation is true in Alabama. These guys who are selling us this property, they're getting a fair price, but they're looking at it the wrong way. And the reason they're looking at it the wrong way is they don't want to operate anymore. But they put it on sale lease backs on this thing and taken out at least what we paid them, but they would have to operate. So, they would have to find an operator - they would've been better off breaking out the parts. I think they got a fair price. They got what they were asking. So, it's a fair price. But from our point of view, we’ve bought these things at 3x, 4x operating profit. And we're looking for more. So, we think that and the Meadowlands and the fact that $6 million or $7 million of our operating profit is now coming from places we own where we think the real estate is undervalued in addition. I think we can serve our shareholders better by staying the course and hopefully, living long enough to see a racetrack at - a casino at the racetrack at the Meadowlands.

What about the situation of your - let's call it, your buyback program?

Buyback program, quite honestly, was instituted for 2 reasons. Number one, we're looking at this referendum that's on the books, and we're saying to ourselves, nobody is putting a premium on the stock or valuing - it's not an option on the Meadowlands, but the possibility of a casino at the Meadowlands. There’s nobody that's pricing that into the stock, we believe, all right. Now you have to make certain assumptions about what the business is worth without the casino, is it worth $23, $24 without a casino. Well, if it's worth $23, $24 at the time when we instituted $21, $22, when we instituted the buyback, is it worth that without that casino part and this referendum exists, we said to ourselves as nobody is pricing that in, if the referendum passes, they may be very, very slow to grasp what that could mean to this company, right? So we instituted a buyback saying, hey, we want to be in a position if a block of stock comes up, to be in a position to buy. We're not buying 100, 200 shares at the time and you're right, it's very difficult to buy. We think our public shareholders should be able to buy that stock without our interference if they want to, but if a block should show up, we want to be in a position to buy it. And that's the reason for the buyback. It's not to pick off 200, 300, 400 shares at a time.

You have answered my questions, I thank you so much for your time. I would like to at sometime feel free to call you and I am in New York quite often.

Thank you.

Thank you so much for the wonderful job you are doing and I appreciate it. Thank you so very much.

Thank you. I guess we are ready for other questions.

Our next question comes from the line of Jeff Kay [ph] Private Investor. Please proceed with your question.

Hi, good morning gentlemen and congratulations on continued good performance. I have a couple of questions. I'm a New Yorker, a private investor. I've been your shareholder for several years and now a Wall Street professional for 30 plus years. My question, the first question is, you’ve been talking about performance and most of the properties seem to be doing very well, election cycle aside and the Fort Lauderdale property aside. I do know your properties in New York, I've been to Florida, but I have a question regarding some of the longer standing properties and if there are any that you’re disappointed with the performance, chronic underperformance if they exist? If they do, which ones are they and what's the remedy? Is there a strategy? If you have a property that just seems to be disappointing or just isn't pulling its way, do you sell it, do you change the menu? What is the strategy for properties that are chronically underperforming?

We have two. One is Canyon Road on First Avenue and 75th Street, which is a small restaurant that we always kept because it is making good money, good money, not relative to Bryant Park or any other of our larger properties. But it's making a couple hundred thousand dollars a year. And over time, the rent has gone up with the annual bumps and minimum wage that basically wiped out the profitability of that. We are in the process of selling that to one of our - our manager chef there. And we're not going to get much money for it, but it's throwing off - it's negative cash flow now and it was never very meaningful, but we've owned it since 1984, and we have a lot of legacy employees there. And we were trying to figure out a way to - over the years, to keep them employed and now with minimum wage - you cannot operate a 120-seat restaurant as a public company abiding by all the labor laws profitably in New York unless it's off the sheets, home run with a line outside all time. Canyon Road does not have that. So, we're disposing of that. We're probably a month or 2 away from him getting his liquor license and that will be off our books. Durgin-Park in Boston has become a bit of a disappointment. We have - Bob, how many years left do we have?

16.

We have 16 years left on that lease. That lease was bought by a New York real estate developer, not the lease was bought, the Faneuil Hall was bought by a New York stock - based real estate developer. We understand rents are approaching $100 a foot for Faneuil Hall now. We own a lease that was - own the lease. We have a lease in a building that was previously owned by a family that was one of two buildings in Faneuil Hall that was not owned by the Ross Corporation. So, when we bought Durgin-Park, we bought one of the oldest restaurants - operating restaurants in the United States, but we also picked up a lease that was quite undervalued, because we negotiated that lease directly with the family and part of having a very favorable lease, which comes out to about $25 a foot, was the part of the total negotiation where we paid some $3 million for the restaurant based upon the fact that we were able to get a lease that was substantially under margin. So, we thought that was our margin of safety if over time Durgin-Park became not a big earner. Our problem with Durgin-Park is that everybody wants it to stay the same as it was 140 years ago, although with more modern prices, but the menu is a menu that's not particularly attractive other than to tourists who want the feeling that they're walking back in time and having this menu, which is just not edgy. And we think that if we were going to keep Durgin-Park, we have to do something to change menu dramatically. The danger with that, as we have found other times when we've tried to change menu significantly under the same trade name, keeping the same…

Yes, I'm familiar with it.

We think we have a great installation. Reviews for Clyde's are sensational if you go to OpenTable. It's reviewed as well as any restaurant as we have. We've had, over the course of time, found our footing there, Clyde's - Walt Frazier, for those of you who don't know whose nickname was Clyde is a professional basketball player in New York, has been a wonderful partner. The interesting thing about Clyde's is we're in there at $35 a foot, 10,000 square feet, $350,000 a year. As I told people a couple of years ago, the corner one block south of us of the same size went for $125 a foot. That's a $90 premium over what we're paying, that's $900,000 a year. You could do the arithmetic, the lease is worth a lot of money. However, Hudson Yards is being built. There is a lot of activity right around us. There's going to be a public park right behind us. We have leased two event spaces right behind Clyde's in anticipation of what's going on in the neighborhood. We think Clyde's is going do extremely, extremely well. So we're not making any changes there. But those are the three properties that have been challenging to us recently.

Okay. Thank you. And just a follow-up to the previous caller's question regarding possibly going private and your response in regards to the Meadowlands and its potential value. There is a workaround for something like that, which I'm sure you gentlemen are aware of. You can do some sort of contingent value rights offering with the deal, which would basically carve out the lease and the Meadowlands upside as a separate vehicle and the current shareholders would actually be able to participate if there was some sort of a transaction or quote that was - allowed you to realize the value down the road, so that the deal could get done anyway and there would still be some upside to current shareholders. I just thought I would throw that out. And then, the last point, I think you guys have a great story and doing a great job. I would just advise in the future that these kind of calls perhaps not be done on a Friday, right before New Year's [indiscernible]. I think there is a lot of people who'd like to hear the story. I know it's a thin stock, and you're not going to get a big institutional following because of that, but small family officers, private investors, et cetera, are interested in these things and 10:00 on December 30 is a bit of a challenge. But congratulations and if you wanted to respond to that contingent value rights point I brought up, please go ahead.

Yes. We had a few discussions with Simpson Thacher on that. And quite frankly, this may be very much the wrong answer. The legal fees involved were - at the time that were quoted were quite high. And it was complicated with an IRS ruling. So, we're aware of it. We haven't dropped the ball on that. But at that time, it had my head spinning, so I apologize.

Okay. Happy New Year.

And the second point, we don't like to have calls on December 30 at 10:00 in the morning, especially given the fact that we let our office go yesterday, for the half a day, but we blame our public accountings for that. They were a little late getting us ready for this. So, thank you very much for your comments.

Alright. Happy and healthy New Year.

Same to you.

Mr. Weinstein, there’s no further questions at this time. So, I will turn it back to you for closing remarks.

Well, thank you very much. I'm pleased that at least we have two people that seem to be very, very happy. We think we're in the right direction here. Please be a little bit patient with us. I think the EBITDA will start to expand. And I truly wish you all a very happy New Year. And we promise never to do this again at 10:00 in the morning on December 30. That's our resolution. Take care everybody. Look forward to hearing from you next quarterly report.

This concludes today's conference. Thank you for participation. You may disconnect your lines at this time.