CONSOLIDATION OF VARIABLE INTEREST ENTITIES

3 Months Ended

Dec. 31, 2011

Variable Interest Entity, Similar Entity Aggregation, Description

2. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

Effective October 3, 2010, the Company adopted amendments to Accounting Standards Code (“ASC”) Topic 810 (formerly the Financial Accounting Standards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 167—Amendments to FASB Interpretation No. 46(R) (“SFAS No 167”)). This requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity (“VIE”). This analysis identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. This statement requires the Company to focus on a more qualitative approach, rather than a quantitative approach previously required for determining the primary beneficiary of a VIE. It also amended certain guidance for determining whether an entity is a VIE, added an additional requirement to assess whether an entity is a VIE, on an ongoing basis, and required enhanced disclosures that provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE. The adoption of this guidance resulted in the consolidation of certain limited partnerships in the quarter ended January 1, 2011. The Company did not retroactively apply this guidance.

Upon adoption of the new accounting guidance for VIEs on October 3, 2010, the Company determined that it is the primary beneficiary of two VIEs which had not been previously consolidated, Ark Hollywood/Tampa Investment, LLC and Ark Connecticut Investment, LLC as the new guidance requires that a single party (including its related parties and de facto agents) be able to exercise their rights to remove the decision maker in order for the “kick-out” rights to be considered substantive. Previously, a simple majority of owners that could exercise kick-out rights was considered a substantive right. This change resulted in the need for consolidation.

The assets and liabilities associated with the Company’s consolidation of VIEs are as follows:

	December 31, 2011		October 1, 2011
	(in thousands)		(in thousands)
Cash and cash equivalents	$	465	$	852
Accounts receivable		1,980		1,423
Inventories		23		23
Prepaid income taxes		245		244
Prepaid expenses and other current assets		14		9
Due from Ark Restaurants Corp. and affiliates (1)		42		410
Fixed assets, net		3,553		3,660
Other long-term assets		73		71
Total assets	$	6,395	$	6,692
Accounts payable	$	173	$	565
Accrued expenses and other current liabilities		2,653		2,076
Total liabilities		2,826		2,641
Equity of variable interest entities		3,569		4,051
Total liabilities and equity	$	6,395	$	6,692

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

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

For the 13-week periods ended December 31, 2011 and January 1, 2011, aggregate revenue and operating expenses relating to these VIEs were $5,044,000 and $4,080,000, and $4,767,000 and $4,046,000, respectively, and are included in the accompanying Consolidated Condensed Statements of Operations.