ARC Group, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - ARC Group, Inc.	t82284_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - ARC Group, Inc.	t82284_ex32-1.htm
EXCEL - IDEA: XBRL DOCUMENT - ARC Group, Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - ARC Group, Inc.	t82284_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2015

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission File No. 000-54226

ARC GROUP, INC.
(Exact name of registrant as specified in its charter)

Nevada		59-3649554
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

	212 Guilbeau Road Lafayette, Louisiana 70506
	(Address of principal executive offices)

(904) 741-5500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 1394 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

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

Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN

BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: There were 6,501,035 shares of the issuer’s Class A common stock, $0.01 par value per share, issued and outstanding on May 13, 2015.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Balance Sheets at March 31, 2105 (unaudited) and December 28, 2014	1

	Statements of Operations for the three-month periods ended March 31, 2015 and March 30, 2014 (unaudited)	2

	Statement of Stockholders’ Deficit for the three-month period ended March 31, 2015 (unaudited)	3

	Statements of Cash Flows for the three-month periods ended March 31, 2015 and March 30, 2014 (unaudited)	4

	Notes to Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 4.	Controls and Procedures	31

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 2.	Unregistered Sales of Securities and Use of Proceeds	32

Item 6.	Exhibits	33

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

ARC Group, Inc.

Balance Sheets


	March 31,			December 28,
	2015			2014
	(Unaudited)

Assets

Cash and cash equivalents	$	106,218		$	-
Accounts receivable, net		15,838			-
Accounts receivable, net – related party		45,095			43,033
Notes receivable – related party		20,500			18,600
Interest receivable		7,641			5,063

Total current assets		195,292			66,696

Property and equipment, net of accumulated depreciation of $4,674 at March 31, 2015 and December 28, 2014, respectively		-			-
Deposits		1,806			1,100
Notes receivable, net of current portion		10,156			10,990
Equity investment in Paradise on Wings		833,619			818,545

Total assets	$	1,040,873		$	897,331

Liabilities and stockholders’ deficit

Accounts payable and accrued expenses	$	524,822		$	495,765
Accrued expenses – related party		16,426			17,898
Accrued interest		13,008			11,480
Advertising fund liabilities		23,377			31,474
Settlement agreements payable		527,261			441,056
Notes payable – related party		20,785			3,420
Notes payable – in default		11,000			11,000
Other current liabilities		21,179			4,741

Total current liabilities		1,157,858			1,016,834

Total liabilities		1,157,858			1,016,834

Stockholders’ deficit:

Class A common stock – $0.01 par value: 100,000,000 shares authorized, 6,501,035 and 6,362,464 shares issued and outstanding at March 31, 2015 and December 28, 2014, respectively		65,010			63,625
Additional paid-in capital		3,632,066			3,564,309
Stock subscriptions receivable		(85,000	)		(170,000	)
Stock subscriptions payable		162,192			289,452
Accumulated deficit		(3,891,253	)		(3,866,889	)

Total stockholders’ deficit		(116,985	)		(119,503	)

Total liabilities and stockholders’ deficit	$	1,040,873		$	897,331

The accompanying notes are an integral part of these financial statements

ARC Group, Inc.

Statements of Operations (Unaudited)


	For the Three Months Ended
	March 31, 2015			March 30, 2014

Revenue:
Net revenue	$	142,609		$	110,363
Net revenue – related party		80,407			17,395

Total net revenue		223,016			127,758

Operating expenses:
Professional fees		61,307			46,310
Employee compensation expense		124,870			116,331
General and administrative expenses		44,310			55,782

Total operating expenses		230,487			218,423

Loss from operations		(7,471	)		(90,665	)

Other expense
Interest expense		(7,402	)		(9,206	)
Income from investment in Paradise on Wings		15,073			4,208
Loss on settlement of litigation		(27,142	)		-
Interest income		2,578			-

Total other expense		(16,893	)		(4,998	)

Net loss	$	(24,364	)	$	(95,663	)

Net loss per share – basic and fully diluted	$	(0.00	)	$	(0.02	)

Weighted average number of shares outstanding – basic and fully diluted		6,486,580			6,179,138

The accompanying notes are an integral part of these financial statements

ARC Group, Inc.

Statement of Stockholders’ Deficit (Unaudited)


					Additional		Stock			Stock
	Common Stock				Paid-in		Subscriptions			Subscriptions			Accumulated
	Shares		Par Value		Capital		Receivable			Payable			Deficit			Total
Balance at December 28, 2014		6,362,464	$	63,625	$	3,564,309	$	(170,000	)	$	289,452		$	(3,866,889	)	$	(119,503	)

Common stock issued for services		81,429		814		51,186		-			(37,260	)		-			14,740
Common stock issued for settlement of litigation		57,142		571		16,571		-			(90,000	)		-			(72,858	)
Common stock issued for note receivable – related party		-		-		-		85,000			-			-			85,000
Net loss		-		-		-		-			-			(24,364	)		(24,364	)

Balance at March 31, 2015		6,501,035	$	65,010	$	3,632,066	$	(85,000	)	$	162,192		$	(3,891,253	)	$	(116,985	)

The accompanying notes are an integral part of these financial statements

ARC Group, Inc.

Statements of Cash Flows (Unaudited)


	For the Three Months Ended
	March 31, 2015			March 30, 2014

Cash flows from operating activities

Net loss	$	(24,364	)	$	(95,663	)
Adjustments to reconcile net income / (loss) to net cash provided / (used) by operating activities:
Stock issued for compensation and amortization of stock compensation expense		14,740			12,975
Imputed interest on no-interest loans		-			75
Loss on settlement of litigation		27,142			-
Changes in operating assets and liabilities:
Accounts receivable		(15,838	)		(12,920	)
Accounts receivable – related party		(2,063	)		1,700
Notes receivable		834			7,500
Interest receivable -- related party		(2,578	)		-
Deposits		(706	)		-
Equity investment in Paradise on Wings		(15,073	)		-
Accounts payable and accrued liabilities		29,057			(101,986	)
Accrued liabilities – related party		(1,472	)		(28,313	)
Accrued interest		1,528			-
Advertising fund liabilities		(8,097	)		20,544
Settlement agreements payable		(13,795	)		2,810
Other current liabilities		16,438			1,320

Net cash provided / (used) by operating activities		5,753			(191,958	)

Cash flows from investing activities

Equity investment in Paradise on Wings		-			(400,000	)
Repayments of notes receivable		-			635
Issuance of notes receivable -- related party		(1,900	)		-

Net cash used by investing activities		(1,900	)		(399,365	)

Cash flows from financing activities

Proceeds from issuance of notes payable – related party		17,365			592,690
Payments on stock subscriptions receivable		85,000			-

Net cash provided by financing activities		102,365			592,690

Net increase in cash and cash equivalents		106,218			1,367
Cash and cash equivalents, beginning of period		-			5,062

Cash and cash equivalents, end of period	$	106,218		$	6,429

Supplemental disclosure of cash flow information

Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Schedule of non-cash financing activities

Equity investment in Paradise on Wings	$	-		$	400,000
Stock issued upon conversion of notes payable – related party	$	-		$	570,529
Stock issued for stock subscriptions payable	$	49,452		$	49,080
Common stock issued for settlement of litigation	$	90,000		$	-

The accompanying notes are an integral part of these financial statements

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Note 1. Description of Business

ARC Group, Inc., formerly American Restaurant Concepts, a Nevada corporation (the “Company”), was incorporated in April 2000. The Company’s business is focused on the development of the Dick’s Wings® franchise and the acquisition of financial interests in other restaurant brands. The Dick’s Wings concept is currently comprised of traditional restaurants like its Dick’s Wings & Grill® restaurants, which are full service restaurants, and its Dick’s Wings Express™ restaurants, which are limited service restaurants that focus on take-out orders, as well as non-traditional units like the Dick’s Wings concession stand that the Company has at EverBank Field. The Company establishes restaurants by entering into franchise agreements with qualified parties and generates revenue by granting franchisees the right to use the name “Dick’s Wings” and offer the Dick’s Wings product line in exchange for royalty payments, franchise fees and area development fees.

At March 31, 2015, the Company had 17 restaurants, of which 16 were Dick’s Wings & Grill full service restaurants and one was a Dick’s Wings Express limited service restaurant, and the Dick’s Wings concession stand at EverBank Field. Of the 17 restaurants, 14 were located in Florida and three were located in Georgia. The Company’s concession stand at EverBank Field is also located in Florida. All of the Company’s restaurants are owned and operated by franchisees, and the Company’s concession stand at EverBank Field is licensed to a third-party operator.

On June 13, 2014, the Company’s shareholders approved proposals to change the name of the Company from “American Restaurant Concepts, Inc. to “ARC Group, Inc.” and change the Company’s state of incorporation from Florida to Nevada. The changes became effective on July 16, 2014.

Note 2. Basis of Presentation

Interim Financial Information

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and in conformity with the instructions to Form 10-Q and Article 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the disclosures included in these financial statements are adequate to make the information presented not misleading.

The unaudited financial statements included in this report have been prepared on the same basis as the annual financial statements and in management’s opinion, reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The unaudited financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 28, 2014 included in the Company’s Annual Report on Form 10-K. The results of operations for the three-month period ended March 31, 2015 are not necessarily indicative of the results that the Company will have for any subsequent quarter or full fiscal year.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the Company’s financial statements for 2014 have been reclassified to conform to the 2015 presentation. These reclassifications did not result in any change to the previously reported total assets, net loss or stockholders’ deficit.

Change in Fiscal Year

The Company utilized a 52- or 53-week accounting period that ended on the last Sunday in December. Its fiscal year ended December 28, 2014 was comprised of 52 weeks.

On June 18, 2014, the Company’s board of directors approved a resolution changing the Company’s fiscal year end from the last Sunday in December of the applicable calendar year to December 31st. The change became effective beginning with the Company’s 2015 fiscal year. Pursuant to Rules 13a-10 and 15d-10 of the Securities Exchange Act of 1934, as amended, the Company is not required to file a transition report in connection with the change of its fiscal year end.

Set forth below is a summary of the unaudited income statement of the Company for the three-day period beginning December 29, 2014 and ending December 31, 2014.


Statement of Operations	Period Beginning December 29, 2014 and Ending December 31, 2014
Revenue	$	9,795
Operating expenses		(8,478	)
Income from operations		1,317
Other income		-0-
Net income	$	1,317

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Set forth below is a summary of the unaudited balance sheet of the Company as December 31, 2014.


Balance Sheet	December 31, 2014
Current assets	$	96,314
Equity investment		818,546
Other assets		12,090
Total assets	$	926,950

Accounts payable	$	528,603
Settlement agreements payable		441,056
Other liabilities		78,557
Equity		(121,266	)
Total liabilities and equity	$	926,950

Significant Accounting Policies

As of March 31, 2015, the Company’s significant accounting policies and estimates, and applicable recent accounting pronouncements, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 28, 2014, had not changed materially.

Note 3. Net Loss Per Share

The Company calculates basic and diluted net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic net loss per share is based on the weighted-average number of shares of the Company’s common stock outstanding during the applicable period, and is calculated by dividing the reported net loss for the applicable period by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net loss per share is calculated by dividing the reported net loss for the applicable period by the weighted-average number of shares of common stock outstanding during the applicable period, as adjusted to give effect to the exercise or conversion of all potentially dilutive securities outstanding at the end of the applicable period.

All of the shares of common stock underlying exercisable or convertible securities that were outstanding at March 31, 2015 and March 30, 2014 were excluded from the computation of diluted net loss per share for the three-month periods ended March 31, 2015 and March 30, 2014, respectively, because they were anti-dilutive. As a result, basic net loss per share was equal to diluted net loss per share for the three-month periods ended March 31, 2015 and March 30, 2014.

Note 4. Investment in Paradise on Wings

On January 20, 2014, the Company entered into a contribution agreement with Paradise on Wings. In connection with the execution of the contribution agreement, on January 20, 2014, the Company and the incumbent members of Paradise on Wings entered into an amended and restated operating agreement of Paradise on Wings to reflect the terms of the contribution agreement. The transactions contemplated by the contribution agreement and operating agreement were completed on January 20, 2014.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Under the terms of the contribution agreement, the Company (sometimes referred to herein as the “Class B Member”) acquired 117.65 Class B membership interests in Paradise on Wings, representing all of the outstanding Class B membership interests and a 50% ownership interest in Paradise on Wings (the “Class B Membership Interests”). The incumbent members of Paradise on Wings (the “Class A Members”) converted their existing membership interests into a total of 117.65 Class A membership interests in Paradise on Wings, representing all of the outstanding Class A membership interests and a 50% ownership interest in Paradise on Wings (the “Class A Membership Interests”).

The Company agreed to pay $400,000 in cash, of which $350,000 was paid prior to closing and $50,000 was due upon closing, and $400,000 in shares of the Company’s common stock to Paradise on Wings in consideration for the Class B Membership Interests (the “Capital Contribution”). The shares of common stock (the “ARC Shares”) were valued based upon the opening bid price of the common stock on the OTCmarkets.com on the morning of the closing date, which was $1.70 per share. Accordingly, the Company issued 235,295 shares of common stock to Paradise on Wings on the closing date.

Under the operating agreement, the power to manage the business and affairs of Paradise on Wings has been vested in the managers of Paradise on Wings. The Class A Members may appoint up to two managers, which manager(s) have a total of 50% of the vote of all managers. The Company, as the owner of all of the Class B Membership Interests, may appoint one manager who has a total of 50% of the vote of all managers. Notwithstanding the foregoing, the Contributed Capital may not be used to pay salaries or bonuses to any of the Class A Members or Class B Members, and the vote of 60% of the total outstanding Class A Membership Interests and Class B Membership Interests is required in the event Paradise on Wings wishes to use the Contributed Capital for any permitted purpose.

The Class A Membership Interests are identical to the Class B Membership Interests in all respects except that the Class A Membership Interests have a preferred right to distributions from Paradise on Wings with respect to the ARC Shares. The Class A Members, through their ownership of the Class A Membership Interests, are entitled to receive a total of 50% of all items of income, gain, losses, deductions and expenses (including 100% of any such items associated with the ARC Shares), and the Company, through its ownership of the Class B Membership Interests, is entitled to receive 50% of all items of income, gain, losses, deductions and expenses (with the exception of any such items associated with the ARC Shares).

The Company accounts for its 50% ownership interest in Paradise on Wings using the equity method of accounting because the Company has the ability to exert significant influence, but not control, over the operating and financial policies of Paradise on Wings. The investment was initially recorded at the fair value amount of the Company’s initial investment and subsequently adjusted for the Company’s share of the net income and loss, and cash contributions and distributions, to or from Paradise on Wings. The Company reported its income from Paradise on Wings as income from investment in Paradise on Wings in its statements of operations, and reported its investment in Paradise on Wings as equity investment in Paradise on Wings in its balance sheets.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Set forth below is a summary of the unaudited statement of operations of Paradise on Wings for the three-month period ended March 31, 2015 and the period beginning January 21, 2014 and ending March 30, 2014 provided to the Company by Paradise on Wings.


Statement of Operations	Three Months Ended March 31, 2015			Period From January 21, 2014 Through December 28, 2014
Revenue	$	94,367		$	62,516
Operating expenses		(64,221	)		54,627
Income from operations		30,146			7,889
Other income		-0-			527
Net income	$	30,146		$	8,416

Company’s share of net income	$	15,073		$	4,208

Set forth below is a summary of the unaudited balance sheet of Paradise on Wings as of March 31, 2015 and March 30, 2014 provided to the Company by Paradise on Wings.


Balance Sheet	March 31, 2015		March 30, 2014
Current assets	$	125,253	$	62,934
Equity investment		400,000		400,000
Note receivable		160,051		160,051
Total assets	$	685,304	$	622,985

Total liabilities	$	48,439	$	44,941
Equity		636,865		578,044
Total liabilities and equity	$	685,304	$	622,985

Note 5. Fair Value Measurements

On January 20, 2014, the Company purchased a 50% ownership interest in Paradise on Wings. A description of the investment in Paradise on Wings is set forth herein under Note 4. Investment in Paradise on Wings.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

The following table presents the Company’s equity investment in Paradise on Wings within the fair value hierarchy utilized to measure fair value on a recurring basis as of March 31, 2015 and December 28, 2014:


	Level 1		Level 2		Level 3
Equity investments – March 31, 2015	$	-0-	$	833,619	$	-0-
Equity investments – December 28, 2014	$	-0-	$	818,545	$	-0-

The Company’s other financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued liabilities and notes payable. The estimated fair values of the cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other short-term liabilities approximates their respective carrying amounts due to the short-term maturities of these instruments. The estimated fair values of the notes receivable and notes payable also approximates their respective carrying amounts since their terms are similar to those in the lending market for comparable loans with comparable risks. The fair value of related-party transactions is not determinable due to their related-party nature. None of these instruments are held for trading purposes.

Note 6. Commitments and Contingencies

Employment & Consulting Agreements

On July 12, 2013, the Company entered into a consulting agreement with Michael Rosenberger, who then served as the Company’s Chief Executive Officer, Chief Financial Officer and Secretary, pursuant to which Mr. Rosenberger agreed to assist the Company with its prior business and future business during a term beginning July 31, 2013 and ending December 31, 2013. In return, the Company agreed to pay Mr. Rosenberger $70,000 on July 31, 2013 and to make payments of $32,500 to Mr. Rosenberger on September 1, 2013, October 15, 2013, December 1, 2013 and December 31, 2013. In the event the Company failed to make one or more of these payments to Mr. Rosenberger in the amounts and on the dates specified in the consulting agreement, ownership of the Trademarks would have reverted back to Moose River and the License Agreement would have continued in full force and effect. The consulting agreement became effective on July 31, 2013. All payments to Mr. Rosenberger were made in the amounts and on the dates specified in the consulting agreement. The Company recognized $1,699 of consulting expense in connection therewith during the three-month period ended March 30, 2014.

On January 22, 2013, the Company appointed Richard W. Akam to serve as its Chief Operating Officer. In connection therewith, the Company entered into an employment agreement with Mr. Akam pursuant to which it agreed to pay him an annual base salary of $150,000, subject to annual adjustment and discretionary bonuses, plus certain standard and customary fringe benefits. The initial term of the employment agreement is for one year and automatically renews for additional one year terms until terminated by Mr. Akam or the Company.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

The employment agreement provides that, on July 22, 2013, the Company would grant Mr. Akam shares of its common stock equal in value to $50,000 if Mr. Akam is continuously employed by the Company through that date. The number of shares of common stock that the Company would issue to Mr. Akam would be calculated based on the last sales price of the Company’s common stock as reported on the OTC Bulletin Board on July 22, 2013. The employment agreement also provides that the Company will grant Mr. Akam additional shares of its common stock equal in value to $50,000 on January 1st of each year thereafter if Mr. Akam is continuously employed by the Company through January 1st of the applicable year. The number of shares of common stock that the Company will issue to Mr. Akam for each applicable year will be calculated based on the average of the last sales price of shares of the Company’s common stock as reported on the OTC Bulletin Board for the month of January of the applicable year.

Notwithstanding the above, and in connection therewith, Mr. Akam agreed that the number of shares that may be earned by him under his employment agreement in connection with any particular grant would be equal to the lesser of: (i) 71,429 shares of common stock, or (ii) the number of shares of common stock calculated by dividing $50,000 by the closing price of the Company’s common stock on the day immediately preceding the date the Company’s obligation to issue the shares to him fully accrues. Mr. Akam also agreed that in the event the Company is unable to fulfill its obligation to issue all of the shares earned by him with respect to any particular grant because it does not have enough shares of common stock authorized and available for issuance, (i) Mr. Akam will not require the Company to issue more shares of common stock than are then authorized and available for issuance by the Company, and (i) the Company may settle any liability to Mr. Akam created as a result thereof in cash.

In the event the Company terminates Mr. Akam’s employment without “cause” (as such term is defined in the employment agreement), Mr. Akam will be entitled to receive the following severance compensation from the Company: (i) if the Company terminates Mr. Akam’s employment during the first year of his employment with the Company, that amount of compensation equal to the salary payable to Mr. Akam during that year, (ii) if the Company terminates Mr. Akam’s employment during the second year of his employment with the Company, that amount of compensation equal to nine months of the salary payable to Mr. Akam during that year, (iii) if the Company terminates Mr. Akam’s employment during the third year of his employment with the Company, that amount of compensation equal to six months of the salary payable to Mr. Akam during that year, and (iv) if the Company terminates Mr. Akam’s employment after the third year of his employment with the Company, that amount of compensation equal to three months of the salary payable to Mr. Akam during the year that such termination occurs. Mr. Akam will not be entitled to receive any severance compensation from the Company if the Company terminates his employment for “cause” or as a result of his disability, or if Mr. Akam resigns from his employment with the Company.

The employment agreement also contains customary provisions that provide that, during the term of Mr. Akam’s employment with the Company and for a period of one year thereafter, Mr. Akam is prohibited from disclosing confidential information of the Company, soliciting Company employees and certain other persons, and competing with the Company.

On July 22, 2013, the Company issued 71,429 shares of its common stock to Richard Akam pursuant to the terms of the employment agreement.

On July 31, 2013, the Company appointed Richard Akam as its Chief Executive Officer, Chief Financial Officer and Secretary. The Company and Mr. Akam did not amend the employment agreement in connection with the above appointments, and Mr. Akam is not receiving any additional compensation in connection with the above appointments.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

On August 19, 2013, the Company appointed Daniel Slone as the Company’s Chief Financial Officer. The Company agreed to pay Mr. Slone an annual base salary of $1.00 in connection with his appointment. The Company did not enter into an employment agreement with Mr. Slone. In connection therewith, on August 19, 2013, Richard Akam resigned as the Company’s Chief Financial Officer. Mr. Akam retained his positions as the Company’s Chief Executive Officer, Chief Operating Officer and Secretary.

On January 1, 2014, Richard Akam earned 28,433 shares of common stock under the terms of his employment agreement with the Company, and on January 1, 2015, Mr. Akam earned 71,429 shares of common stock under the terms of his employment agreement with the Company.

Operating Leases

In January 2013, the Company entered into a commercial lease with GGRD II, LLC for its corporate headquarters located at 13453 North Main Street, Jacksonville, Florida pursuant to which the Company leases approximately 1,800 square feet of space. The lease provided for a fixed monthly rent payment of $1,100 and expired on January 31, 2015.

In January 2015, the Company entered into a lease with Crescent Hill Office Park for its corporate headquarters located at 6327-4 Argyle Forest Boulevard, Jacksonville, Florida pursuant to which the Company leases approximately 2,000 square feet of space. The lease provides for an initial monthly rent payment of $1,806 and expires on December 31, 2017.

Legal Proceedings

In January 2015, Santander Bank filed a complaint against the Company in the Circuit Court, Fourth Judicial Circuit in and for Duval County, Florida, seeking damages of approximately $194,000 plus interest, costs and attorneys fees for breach of a guaranty of certain obligations of Ritz Aviation, LLC (“Ritz Aviation”) under a promissory note executed by Ritz Aviation in July 2005. This case is currently pending.

Note 7. Notes Receivable

In May and June 2013, the Company made loans to certain of its franchisees in the aggregate original principal amount of $40,507 to assist them with the payment of franchise fees owed to the Company and the payment of other business expenses incurred by the franchisees in running their respective restaurants. The loans are for terms ranging from one year to three years in duration, are payable in monthly installments, and do not require the payment of any interest. Payments in the aggregate amount of $482 and $8,135 were made against the loans during the three-month periods ended March 31, 2015 and March 30, 2014, respectively.

In December 2013, the Company loaned $6,000 to DWG Acquisitions, LLC, a Florida limited liability company (“DWG Acquisitions”). The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory Holdings, Inc., a Nevada corporation (“Blue Victory”), during the three-month period ended March 30, 2014. The repayment was made by Blue Victory in the form of a reduction in the balance of the loans outstanding under the revolving line of credit facility that Blue Victory extended to the Company in September 2013. A description of the credit facility is set forth herein under Note 8. Debt Obligations.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Between April and June 2014, the Company loaned $17,952 to DWG Acquisitions. The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory during the year ended December 28, 2014. The repayment was made by Blue Victory in the form of a reduction in the balance of the loans outstanding under the revolving line of credit facility that Blue Victory extended to the Company in September 2013. A description of the credit facility is set forth herein under Note 8. Debt Obligations.

In September 2014, the Company made a loan to one of its franchisees in the aggregate original principal amount of $6,329. The loan is for a term of three years, is payable in monthly installments, and does not require the payment of any interest. Payments in the aggregate amount of $352 were made against the loan during the three-month period ended March 31, 2015.

In October 2014, the Company loaned $3,700 to Yobe Acquisition, LLC (“Yobe Acquisition”). The loan is interest free and payable on demand. No payments were made under the loan during the three-month period ended March 31, 2015.

In November and December 2014, the Company loaned a total of $14,900 to Quantum Leap QSR, LLC (“Quantum Leap”). The loan is interest free and payable on demand. No payments were made under the loan during the three-month period ended March 31, 2015.

The carrying value of the Company’s outstanding notes receivable was $30,656 at March 31, 2015. A total of $10,156 of the notes receivable are reflected in cash flows from operating activities because the loans were made to assist the respective franchisees with the payment of franchisee fees owed to the Company. The remaining balance of $20,500 of the notes receivable are reflected in cash flows from investing activities because the loans were not made in connection with the payment of franchise fees, royalties or other revenue owed to the Company.

The carrying value of the Company’s outstanding notes receivable was $29,590 at December 28, 2014. A total of $10,990 of the notes receivable are reflected in cash flows from operating activities because the loans were made to assist the respective franchisees with the payment of franchisee fees owed to the Company. The remaining balance of $18,600 of the notes receivable are reflected in cash flows from investing activities because the loans were not made in connection with the payment of franchise fees, royalties or other revenue owed to the Company.

Note 8. Debt Obligations

The carrying value of the Company’s outstanding promissory notes, net of unamortized discount, was $31,785 and $14,420 at March 31, 2015 and December 28, 2014, respectively, of which $11,000 was in default on each of those dates. Accrued interest under the Company’s outstanding promissory notes was $13,008 and $11,480 at March 31, 2015 and December 28, 2014, respectively.

A summary of the terms of the promissory notes that were outstanding during the three-month period ended March 31, 2015 and the year ended December 28, 2014 is provided below.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

During the fourth quarter of 2008, the Company issued promissory notes to four investors for a total original principal amount of $11,000 in return for aggregate cash proceeds of $11,000. The notes bear interest at a rate of 6% per annum and provide for the payment of all principal and interest three years after the date of the respective notes. The notes provide for the payment of a penalty in an amount equal to 10% of the principal amount of the notes in the event they are not paid by the end of the term. These notes are currently in default.

On September 13, 2013, the Company entered into a loan agreement with Blue Victory pursuant to which Blue Victory agreed to extend a revolving line of credit facility to the Company for up to $1 million. Under the terms of the loan agreement, Blue Victory agreed to make loans to the Company in such amounts as the Company may request from time to time, provided that the total amount of loans requested in any calendar month may not exceed $150,000. All loan requests are subject to approval by Blue Victory. The Company may use the proceeds from the credit facility for general working capital purposes.

The credit facility is unsecured, accrues interest at a rate of 6% per annum, and will terminate upon the earlier to occur of the fifth anniversary of the loan agreement or the occurrence of an event of default (the “Termination Date”). The outstanding principal balance of the credit facility and any accrued and unpaid interest thereon are payable in full on the Termination Date. Loans may be prepaid by the Company without penalty and borrowed again at any time prior to the Termination Date. The obligation of the Company to pay the outstanding balance of the credit facility is evidenced by a promissory note that was issued by the Company to Blue Victory on September 13, 2013.

Blue Victory has the right, at any time on or after September 13, 2013, to convert all or any portion of the outstanding principal of the credit facility, together with accrued interest payable thereon, into shares of the Company’s common stock at a conversion rate equal to: (i) the closing price of the common stock on the date immediately preceding the conversion date if the common stock is then listed on the OTC Bulletin Board or a national securities exchange, (ii) the average of the most recent bid and ask prices on the date immediately preceding the conversion date if the common stock is then listed on any of the tiers of the OTC Markets Group, Inc., or (iii) in all other cases, the fair market value of the common stock as determined by the Company and Blue Victory. Notwithstanding the above, in the event the Company does not have adequate shares of common stock authorized and available for issuance to be able to fulfill a conversion request, or the Company would breach its obligations under the rules or regulations of any trading market on which its shares of common stock are then listed if it fulfilled a conversion request, Blue Victory will amend the conversion notice to reduce the amount of principal and/or interest for which the conversion was requested to that amount for which an adequate number of shares of common stock is authorized and available for issuance by the Company.

As of September 13, 2013, the Company had outstanding loans from Blue Victory that were interest free and payable on demand in the aggregate amount of $415,316. Pursuant to the terms of the loan agreement, these loans were reflected as loans outstanding under the loan agreement. Accordingly, the outstanding principal amount of the credit facility on September 13, 2013 was $415,316.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Between September 14, 2013 and November 5, 2013, the Company borrowed an additional $56,971 under the credit facility.

On November 5, 2013, the Company had a total of $475,626 of principal and accrued but unpaid interest outstanding under the credit facility. On that date, Blue Victory converted all of the outstanding principal and accrued interest into a total of 243,911 shares of the Company’s common stock. No gain or loss was recognized in connection with the conversion because the conversion was made in accordance with the terms of the credit facility.

Between November 6, 2013 and January 21, 2014, the Company borrowed an additional $567,662 under the credit facility.

On January 21, 2014, the Company had a total of $570,529 of principal and accrued but unpaid interest outstanding under the credit facility. On that date, Blue Victory converted all of the outstanding principal and accrued interest into a total of 326,017 shares of the Company’s common stock. No gain or loss was recognized in connection with the conversion because the conversion was made in accordance with the terms of the credit facility.

Between January 22, 2014 and June 29, 2014, the Company borrowed an additional $237,410 under the credit facility, and between June 30, 2014 and December 28, 2014, the Company repaid $233,990 under the credit facility. Accordingly, as of December 28, 2014, the outstanding principal amount of the credit facility was $3,420.

Between December 29, 2014 and March 31, 2015, the Company borrowed an additional $17,365 under the credit facility. Accordingly, as of March 31, 2015, the outstanding principal amount of the credit facility was $20,785.

In December 2013, the Company borrowed $5,000 from Star Brands II, a Louisiana limited liability company. The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory during the three-month period ended March 30, 2014. The payment was made by Blue Victory in the form of a loan under the revolving line of credit facility that Blue Victory extended to the Company in September 2013. A description of the credit facility is set forth herein under Note 8. Debt Obligations.

The carrying value of the Company’s outstanding promissory notes, net of unamortized discount, was $31,785 and $14,420 at March 31, 2015 and December 28, 2014, respectively, as follows:


	March 31, 2015		December 28, 2014
Notes payable – related party	$	20,785	$	3,420
Notes payable – in default		11,000		11,000
Total notes payable, net	$	31,785	$	14,420

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Note 9. Capital Stock

The Company’s authorized capital consisted of 100,000,000 shares of Class A common stock, par value $0.01 per share, at March 31, 2015 and December 28, 2014, respectively, of which 6,501,035 and 6,362,464 shares of common stock were outstanding at March 31, 2015 and December 28, 2014, respectively.

In January 2013, the Company appointed Richard W. Akam to serve as its Chief Operating Officer. In connection therewith, the Company entered into an employment agreement with Mr. Akam. The employment agreement provides in part that the Company will grant Mr. Akam shares of its common stock equal in value to $50,000 on January 1st of each year thereafter if Mr. Akam is continuously employed by the Company through January 1st of the applicable year. The number of shares of common stock that the Company will issue to Mr. Akam for each applicable year will be calculated based on the average of the last sales price of shares of the Company’s common stock as reported on the OTC Bulletin Board for the month of January of the applicable year. A description of the employment agreement is set forth herein under Note 6. Commitments and Contingencies – Employment Agreements.

On January 1, 2014, Richard W. Akam, the Company’s Chief Executive Officer, Chief Operating Officer and Secretary, earned 28,433 shares of common stock under the terms of his employment agreement with the Company. The Company recognized $920 of stock compensation expense in connection therewith during the three-month period ended March 30, 2014.

In November 2013, the Company issued a total of 28,572 shares of common stock to Brusta Investments and D. Dale Thevenet pursuant to the terms of a settlement agreement in full payment of $55,000 of principal and accrued interest that was outstanding under the promissory note that had originally been issued by the Company to The Carl Collins Trust in January 2012. A description of the promissory note and settlement agreement is set forth herein under Note 8. Debt Obligations.

In November 2013, the Company issued a total of 243,911 shares of common stock to a limited number of accredited investors upon Blue Victory’s conversion of $475,626 of principal and accrued but unpaid interest outstanding under the credit facility entered into between the Company and Blue Victory in September 2013. A description of the credit facility is set forth herein under Note 8. Debt Obligations.

On January 20, 2014, the Company purchased a 50% ownership interest in Paradise on Wings in exchange for $400,000 in cash and 235,295 shares of common stock. A description of the investment in Paradise on Wings is set forth herein under Note 4. Investment in Paradise on Wings.

On January 21, 2014, the Company issued a total of 326,017 shares of common stock to a limited number of accredited investors upon Blue Victory’s conversion of $570,529 of principal and accrued but unpaid interest outstanding under the credit facility entered into between the Company and Blue Victory in September 2013. A description of the credit facility is set forth herein under Note 8. Debt Obligations.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

On February 27, 2014, the Company entered into a securities purchase agreement with Seenu G. Kasturi pursuant to which Mr. Kasturi agreed to purchase 206,061 shares of the Company’s common stock for $340,000. The price per share of common stock paid by Mr. Kasturi was equal to the closing price of the Company’s common stock on the OTCQB on the day immediately preceding the date the transaction was completed. Mr. Kasturi paid for the shares through the issuance of a promissory note in favor of the Company in the amount of $340,000. The promissory note is unsecured, accrues interest at a rate of 6% per annum, and has a maturity date of March 31, 2015. The principal and interest are payable in four equal quarterly installments of $85,000 beginning June 30, 2014. The investment was reflected in stock subscriptions receivable at March 31, 2015 and December 28, 2014. As of March 31, 2015 and December 28, 2014, a total of $85,000 and $170,000 remained outstanding under the promissory note.

On September 30, 2014, the Company issued 50,000 shares of its common stock to a consultant as full payment for outstanding fees that were due and payable. The shares were valued at a price per share equal to the closing price of the Company’s common stock on the OTCQB on the date the transaction was completed. The Company recognized $20,000 of stock compensation expense in connection therewith during the year ended December 28, 2014.

In January 2015, Richard Akam earned 71,429 shares of common stock under the terms of his employment agreement with the Company. The Company recognized $548 of stock compensation expense in connection therewith during the three-month period ended March 31, 2015.

In February 2015, the Company issued 10,000 shares of its common stock to one of its non-executive employees as incentive compensation. The Company recognized $2,000 of stock compensation expense in connection therewith during the three-month period ended March 31, 2015.

Note 10. Stock Options and Warrants

The Company did not issue any stock options or warrants exercisable into shares of the Company’s common stock during the three-month period ended March 31, 2015 and the year ended December 28, 2014, and no stock options or warrants were exercised or outstanding during the three-month period ended March 31, 2015 and the year ended December 28, 2014.

Note 11. Stock Compensation Plans

American Restaurant Concepts, Inc. 2011 Stock Incentive Plan

In August 2011, the Company adopted the American Restaurant Concepts, Inc. 2011 Stock Incentive Plan. Under the plan, 1,214,286 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards. As of December 28, 2014, 142,858 shares of the Company’s common stock remained available for issuance under the plan. The plan terminates in August 2021. On August 18, 2011, the Company filed a registration statement on Form S-8, File No. 333-176383, with the SEC covering the public sale of all 1,214,286 shares of common stock available for issuance under the plan.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

ARC Group 2014 Stock Incentive Plan

In June 2014, the Company adopted the ARC Group, Inc. 2014 Stock Incentive Plan. Under the plan, 1,000,000 shares of common stock may be granted to employees, officers and directors of, and consultants and advisors to, the Company under awards that may be made in the form of stock options, warrants, stock appreciation rights, restricted stock, restricted units, unrestricted stock and other equity-based or equity-related awards. As of December 28, 2014, all 1,000,000 shares of the Company’s common stock remained available for issuance under the plan. The plan terminates in June 2024.

Note 12. Related-Party Transactions

In July 2013, the Company entered into a consulting agreement with Mr. Rosenberger in connection with his resignation from all such positions with the Company and as a member of the Company’s board of directors. A description of the consulting agreement is set forth herein under Note 6. Commitments and Contingencies – Employment Agreements.

In January 2013, the Company entered into an employment agreement with Richard W. Akam in connection with his appointment as the Company’s Chief Operating Officer. Mr. Akam currently serves as the Company’s Chief Executive Officer, Chief Operating Officer and Secretary. A description of the employment agreement is set forth herein under Note 6. Commitments and Contingencies – Employment Agreements.

In July 2013, the Company entered into a sponsorship agreement with the Jacksonville Jaguars, LLC and, in connection therewith, in August 2013, entered into a subcontractor concession agreement with Levy Premium Foodservice Limited Partnership. The Company subsequently assigned all of its rights and obligations under the concession agreement to DWG Acquisitions in return for a fee of $2,000 per month for each full or partial month during which the concession agreement is in effect. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. The Company generated revenue of $6,000 from DWG Acquisitions under the concession agreement during the three-month periods ended March 31, 2015 and March 30, 2014, all of which was reflected in accounts receivable at March 31, 2015 and March 30, 2014.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

In September 2013, the Company entered into a loan agreement with Blue Victory pursuant to which Blue Victory agreed to extend a revolving line of credit facility to the Company for up to $1 million. The credit facility is unsecured, accrues interest at a rate of 6% per annum, and will terminate upon the earlier to occur of the fifth anniversary of the loan agreement or the occurrence of an event of default. Blue Victory has the right, at any time on or after September 13, 2013, to convert all or any portion of the outstanding principal of the credit facility, together with accrued interest payable thereon, into shares of the Company’s common stock at a price per share equal to the closing price of the Company’s common stock on the OTCQB on the day immediately preceding the date the transaction was completed. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and 90% of the equity interests in Blue Victory. He also serves as the President, Treasurer and Secretary, and as the sole member of the board of directors, of Blue Victory. Fred Alexander serves as a member of the Company’s board of directors and as an executive officer of Blue Victory, and Daniel Slone serves as the Company’s Chief Financial Officer and as the controller of Blue Victory. The Company had total loans of $20,785 and $3,420 outstanding under the credit facility as of March 31, 2015 and December 28, 2014. A description of the credit facility is set forth herein under Note 8. Debt Obligations.

In October 2013, DWG Acquisitions became the franchisee of the Dick’s Wings restaurant located in the Nocatee development in Ponte Vedra, Florida. In connection therewith, DWG Acquisitions entered into a franchise agreement with the Company. The terms of the franchise agreement were identical to those of the franchise agreements that the Company enters into with unrelated franchisees, except that the Company did not require DWG Acquisitions to pay a franchise fee to the Company. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. The Company generated a total of $17,326 and $11,395 in royalties from DWG Acquisitions under the agreement during the three-month periods ended March 31, 2015 and March 30, 2014, respectively.

In December 2013, the Company loaned $6,000 to DWG Acquisitions. The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory during the three-month period ended March 30, 2014. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. A description of the loan is set forth herein under Note 7. Notes Receivable.

In December 2013, the Company borrowed $5,000 from Star Brands II, LLC, a Louisiana limited liability company (“Star Brands II”). The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory during the three-month period ended March 30, 2014. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and 70% of the equity interests in Star Brands II. He also serves as the Manager of Star Brands II. A description of the loan is set forth herein under Note 8. Debt Obligations.

In February 2014, the Company entered into a securities purchase agreement with Seenu G. Kasturi pursuant to which Mr. Kasturi agreed to purchase 206,061 shares of the Company’s common stock for $340,000. The price per share of common stock paid by Mr. Kasturi was equal to the closing price of the Company’s common stock on the OTCQB on the day immediately preceding the date the transaction was completed. Mr. Kasturi paid for the shares through the issuance of a promissory note in favor of the Company in the amount of $340,000. The promissory note is unsecured, accrues interest at a rate of 6% per annum, and has a maturity date of March 31, 2015. The principal and interest are payable in four equal quarterly installments of $85,000 beginning June 30, 2014. Mr. Kasturi owns approximately 8.9% of the Company’s common stock and 90% of the equity interests in Blue Victory. He also serves as the President, Treasurer and Secretary, and as the sole member of the board of directors, of Blue Victory.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

In May 2014, DWG Acquisitions became the franchisee of the Dick’s Wings restaurant located on Youngerman Circle in Argyle Village in Jacksonville, Florida. In connection therewith, DWG Acquisitions entered into a franchise agreement with the Company. The terms of the franchise agreement were identical to those of the franchise agreements that the Company enters into with unrelated franchisees, except that the Company did not require DWG Acquisitions to pay a franchise fee to the Company. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. The Company generated a total of $26,865 in royalties from DWG Acquisitions under the agreement during the three-month period ended March 31, 2015.

Between April and June 2014, the Company loaned $17,952 to DWG Acquisitions. The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory during the year ended December 28, 2014. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. A description of the loan is set forth herein under Note 7. Notes Receivable.

In October 2014, the Company loaned $3,700 to Yobe Acquisition. The loan is interest free and payable on demand. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in Yobe Acquisition. He also serves as the managing member of Yobe Acquisition. A description of the loan is set forth herein under Note 7. Notes Receivable.

In November and December 2014, the Company loaned a total of $14,900 to Quantum Leap. The loan is interest free and payable on demand. Ketan Pandya is a director of the Company and owns approximately 70% of the equity interests in Quantum Leap. He also serves as the managing member of Quantum Leap. A description of the loan is set forth herein under Note 7. Notes Receivable.

In December 2014, DWG Acquisitions became the franchisee of the Dick’s Wings restaurant located on Gornto Road in Valdosta, Georgia. In connection therewith, DWG Acquisitions entered into a franchise agreement with the Company. The terms of the franchise agreement were identical to those of the franchise agreements that the Company enters into with unrelated franchisees. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. The Company generated a total of $19,417 in royalties from DWG Acquisitions under the agreement during the three-month period ended March 31, 2015.

In March 2015, DWG Acquisitions became the franchisee of the Dick’s Wings restaurant located in Tifton, Georgia. In connection therewith, DWG Acquisitions entered into a franchise agreement with the Company. The terms of the franchise agreement were identical to those of the franchise agreements that the Company enters into with unrelated franchisees. Seenu G. Kasturi owns approximately 8.9% of the Company’s common stock and all of the equity interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and sole member, of DWG Acquisitions. The Company generated a total of $216 in royalties from DWG Acquisitions under the agreement during the three-month period ended March 31, 2015.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

Note 13. Judgments in Legal Proceedings

On October 28, 2009, the Company initiated a legal proceeding entitled American Restaurant Concepts, Inc. vs. Cala, et al was filed in in the United States District Court for the Middle District of Florida, Jacksonville Division, in Duval County. In the complaint, the Company alleged damages for trademark infringement. Also on that date, a legal proceeding entitled Cala v. Rosenberger et al. was filed with the Fourth Judicial Circuit Court in and for Duval County, Florida. In the complaint, the plaintiff alleged damages for breach of contract. In January 2010, the parties to each of the actions entered into a settlement agreement with respect to both actions pursuant to which the Company agreed to pay $250,000 in full settlement of the legal proceedings. In early 2010, Cala breached the terms of the settlement agreement, relieving the Company of any further obligations under the settlement agreement. The Company made total payments of $40,000 under the settlement agreement prior to the breach by Cala. Accordingly, the remaining balance of $210,000 under the settlement agreement was reflected in settlement agreements payable at March 31, 2015 and December 28, 2014.

On February 25, 2011, a legal proceeding entitled Duval Station Investment, LLC vs. Hot Wing Concepts, Inc. d/b/a Dick’s Wings and Grill, and American Restaurant Concepts, Inc. was filed with the Fourth Judicial Circuit Court in and for Duval County, Florida. In the complaint, the plaintiff alleged damages for breach of guaranty. On October 4, 2011, a final judgment was entered by the court in favor of the plaintiff in the amount of $161,747, and on November 11, 2011 a final judgment for attorneys’ fees and costs was entered in favor of the plaintiff in the amount of $33,000. These judgments, together with accrued interest of $2,369 thereon, resulted in a total loss from legal proceedings of $197,116 during the year ended December 25, 2011. This loss was reflected in settlement agreements payable at March 31, 2015 and December 28, 2014. Interest expense in the amount of $2,872 and $2,810 was accrued on the outstanding balance of the settlement agreement payable during the three-month periods ended March 31, 2015 and March 30, 2014, respectively. The interest expense was credited to settlement agreements payable.

In April 2012, a legal proceeding entitled J. David Eberle vs. American Restaurant Concepts, Inc. was filed with the Circuit Court, Fourth Judicial Circuit in and for Duval County, Florida. In the complaint, J. David Eberle, one of the Company’s former employees, alleged damages for breach of contract, unjust enrichment, promissory estoppel and unpaid wages pursuant to Florida Statute § 448.08. In January 2014, the Company entered into a settlement agreement and release with Mr. Eberle pursuant to which the Company agreed to pay Mr. Eberle $100,000, such amount to be paid in six monthly payments of $16,667 beginning March 1, 2015, and agreed to issue 57,142 shares of its common stock to Mr. Eberle. In consideration thereof, Mr. Eberle agreed to release the Company from any and all claims that were asserted or that could have been asserted by Eberle in the legal proceeding, and the complaint was dismissed with prejudice. The Company recognized a loss on the settlement of litigation of $27,142 for the three-month period in connection therewith. This loss was reflected in settlement agreements payable at March 31, 2015.

ARC Group, Inc.

Notes to Financial Statements (Unaudited)

In January 2014, a legal proceeding entitled Marcia L. Danzeisen, Larry Simpson and M&MSquared, LLC, vs. American Restaurant Concepts, Inc. was filed with the Circuit Court, Fourth Judicial Circuit in and for Duval County, Florida. In the complaint, one of the Company’s former franchisees alleged damages for breach of contract and unjust enrichment relating to a franchise agreement that the Company had entered into with them in September 2012. In August 2014, the court granted the Company’s motion to dismiss the complaint.

Note 14. Subsequent Events

There have been no other significant subsequent events through the date these financial statements were issued.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenue and costs, and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions.

We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions that may cause our actual results to differ materially from results proposed in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to:

●

our ability to fund our future growth and implement our business strategy;

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market acceptance of our restaurants and products;

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food safety issues and other health concerns;

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the cost of food and other commodities;

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shortages or interruptions in the availability and delivery of food and other supplies;

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our ability to maintain and increase the value of our Dick’s Wings® brand;

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changes in consumer preferences;

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our ability to identify, attract and retain qualified franchisees;

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our franchisees’ ability to identify suitable restaurant sites and open new restaurants;

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our franchisees’ ability to open new restaurants and operate them in a profitable manner;

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our limited control over the activities of our franchisees;

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our ability to identify, acquire and integrate new restaurant brands and businesses;

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our ability to comply with applicable federal, state and local laws and regulations;

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our ability to protect our trademarks and other intellectual property;

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competition and consolidation in the restaurant industry;

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the effects of litigation on our business;

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the condition of the securities and capital markets generally;

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economic conditions in the jurisdictions in which we operate and nationally;

and statements of assumption underlying any of the foregoing, as well as any other factors set forth herein under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations below and Item 1A. Risk Factors of our Annual Report on Form 10-K for our fiscal year ended December 28, 2014. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.

Item 2.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth herein under Item 1A. Risk Factors of our Annual Report on Form 10-K for our fiscal year ended December 28, 2014 and elsewhere in this report. The following should be read in conjunction with our financial statements beginning on page 1 of this report.

On June 13, 2014, our shareholders approved proposals to change our name from “American Restaurant Concepts, Inc.” to “ARC Group, Inc.” and change our state of incorporation from Florida to Nevada. The changes became effective on July 16, 2014. In connection with our name change, effective July 23, 2014, the stock trading symbol for our shares of common stock was changed from “ANPZ” to “ARCK”. Our shares of common stock continue to be listed on the OTCQB market tier maintained by the OTC Markets Group, Inc. (“OTCQB”).

On June 18, 2014, our board of directors approved a resolution changing our fiscal year end from the last Sunday in December of the applicable calendar year to December 31st. The change will be effective beginning with the Company’s 2015 fiscal year. Pursuant to Rules 13a-10 and 15d-10 of the Exchange Act, we are not required to file a transition report in connection with the change of our fiscal year end.

Overview

We were formed in April 2000 to develop the Dick’s Wings concept, and are the operator and franchisor of the Dick’s Wings brand of restaurants. We offer a variety of boldly-flavored menu items highlighted by our Buffalo, New York-style chicken wings spun in our signature sauces and seasonings. We offer our customers a casual, family-fun restaurant environment designed to appeal to both families and sports fans alike. At Dick’s Wings, we strive to provide our customers with a unique and enjoyable experience from first bite to last call.

Our Dick’s Wings concept is comprised of traditional restaurants like our Dick’s Wings & Grill restaurants, which are full service restaurants, and our Dick’s Wings Express restaurants, which are limited service restaurants that focus on take-out orders, as well as non-traditional units like the Dick’s Wings concession stand that we have in the “Bud Light Party Zone” at EverBank Field. We currently have 18 restaurants, of which 17 are Dick’s Wings & Grill full service restaurants and one is a Dick’s Wings Express limited service restaurant, and our Dick’s Wings concession stand at EverBank Field. Of our 18 restaurants, 14 are located in Florida and four are located in Georgia. Our concession stand at EverBank Field is also located in Florida. All of our restaurants are owned by franchisees, and our concession stand at EverBank Field is licensed to a third-party operator.

Strategy

Our plan is to grow our company from a primarily Florida-based franchisor of Dick’s Wings restaurants into a diversified restaurant company operating a portfolio of premium restaurant brands. The first major component of our growth strategy is the continued improvement and expansion of our legacy Dick’s Wings brand. In furtherance of this, we plan to open franchised restaurants in both new and existing markets in the U.S. In our existing markets, we plan to continue to open new franchise restaurants until a market is penetrated to a point that will enable us to gain marketing, operational, cost and other efficiencies. In new markets, we plan to open several restaurants at a time to quickly build our brand awareness. We currently plan to open several new Dick’s Wings restaurants in the U.S. during the next 12 months.

The other major component of our growth strategy is the acquisition of controlling and non-controlling financial interests in other restaurant brands offering us product and geographic diversification. We plan to complete, and are actively seeking, potential mergers, acquisitions, joint ventures and other strategic initiatives through which we can acquire or develop additional restaurant brands. In furtherance of this strategy, in January 2014, we acquired a 50% ownership interest in Paradise on Wings Franchise Group, LLC, a Utah limited liability company that is the franchisor of the Wing Nutz brand of restaurants (“Paradise on Wings”). A description of our investment in Paradise on Wings is set forth herein under Note 4 – Investment in Paradise on Wings in our financial statements.

Financial Results

We achieved revenue of $223,016 for the three-month period ended March 31, 2015, compared to $127,758 for the three-month period ended March 30, 2014, representing an increase of approximately 75%. Our total operating expenses increased $12,064 to $230,487 for the three-month period ended March 31, 2015, compared to $218,423 for the three-month period ended March 30, 2014. Net loss was $24,364 for the three-month period ended March 31, 2015, compared to $95,663 for the three-month period ended March 30, 2014. Our total assets increased $143,542 to $1,040,873 at March 31, 2015 from $897,331 at March 30, 2014, and our total debt increased $17,365 to $31,785 at March 31, 2015 from $14,420 at March 30, 2014. We had a stockholders’ deficit of $116,985 at March 31, 2015 compared to $119,503 at March 30, 2014. We generated positive cash flows from operations of $5,753 during the three-month period ended March 31, 2015 compared to negative cash flows from operations of $191,958 during the three-month period ended March 30, 2014.

Outlook

We expect our revenue to increase during the next 12 months as we continue to improve the operations of our existing Dick’s Wings restaurants and open new Dick’s Wings restaurants, as we acquire interests in other restaurant brands, and as the economy continues to improve. We expect net loss to decrease during the next 12 months as we generate additional revenue through our new and existing restaurants and as we generate additional income through our 50% ownership interest in Paradise on Wings. The decrease in net loss that we expect to achieve will be partially offset by greater operating expenses that we expect to incur in connection with the general growth of our business and operations. As the increase in revenue beings to outpace the increase in operating expenses, we expect to begin generating net income from our operations.

Notwithstanding the foregoing, in the event we complete additional acquisitions of controlling or non-controlling financial interests in other restaurant brands through mergers, acquisitions, joint ventures or other strategic initiatives, our financial results will include and reflect the financial results of the target entities. Accordingly, the completion of any such transactions in the future may have a substantial beneficial or negative impact on our business, financial condition and results of operations.

Critical Accounting Policies

For information regarding our critical accounting policies, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 28, 2014 under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies”.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements applicable to our business, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 28, 2014 under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting Pronouncements” and in our Notes to Financial Statements included therein.

Comparison of the Three-Month Periods Ended March 31, 2015 and March 30, 2014

Revenue

Revenue consists primarily of royalty payments and franchise fees that we receive from our franchisees. Revenue increased $95,258 to $223,016 for the three-month period ended March 31, 2015 from $127,758 for the three-month period ended March 30, 2014. The increase of $95,258 was due primarily to an increase of $64,718 for royalties and $30,000 for franchised fees. Our royalties were positively impacted by increased sales by our franchisees and operational improvements that we implemented at each of our franchisees’ restaurants, and our franchised fees increased as a result of the opening of a new Dicks Wings restaurant. We expect our revenue to increase during the next 12 months as we continue to improve the operations of our existing Dick’s Wings restaurants and open new Dick’s Wings restaurants, as we acquire additional interests in other restaurant brands, and as the economy continues to improve.

Operating Expenses

Operating expenses consist primarily of professional fees, employee compensation expense, and general and administrative expenses.

Professional Fees. Professional fees consist of fees paid to our independent accountants, lawyers, technology consultants and other professionals and consultants. Professional fees increased $14,997 to $61,307 for the three-month period ended March 31, 2015 from $46,310 for the three-month period ended March 30, 2014. The increase of $14,997 was due primarily to an increase of $8,285 for legal and accounting fees. We expect our professional fees to continue to increase during the next 12 months as we incur increased legal, accounting, technology and consulting fees in connection with the general expansion of our business and operations and our compliance with the rules and regulations of the Securities and Exchange Commission (“SEC”).

Employee Compensation Expense. Employee compensation expense consists of salaries, bonuses and other cash compensation, equity-based compensation and employee benefits paid or granted to our executive officers and employees, and the related payroll taxes. Employee compensation expense increased $8,539 to $124,870 for the three-month period ended March 31, 2015 from $116,331 for the three-month period ended March 30, 2014. The increase of $8,539 was due primarily to an increase of $4,051 for salaries. We expect employee compensation expense to continue to increase over the next 12 months as we hire additional executive officers and other employees in connection with the growth and expansion of our business and operations.

General and Administrative Expenses. General and administrative expenses consist of marketing and advertising expenses, bank service charges, computer and internet expenses, dues and subscriptions, licenses and filing fees, insurance expenses, investor relations expenses, office supplies, rent expense, repairs and maintenance expenses, telephone expenses, travel expenses, utilities expenses and other miscellaneous general and administrative expenses. General and administrative expenses decreased $11,472 to $44,310 for the three-month period ended March 31, 2015 from $55,782 for the three-month period ended March 30, 2014. The decrease of $11,472 was due primarily to a decrease of $9,768 for marketing and advertising expenses. We expect general and administrative expenses to increase over the next 12 months as we incur increasing expenses for marketing and advertising, investor relations, travel, rent, office supplies, insurance and other miscellaneous items associated with the general growth of our business and operations.

Interest Expense

Interest expense consists of the interest and discount amortization costs that we incur on the debt obligations that we have, interest on legal judgments that we have incurred, and imputed interest on no-interest loans that have been made to us. Interest expense decreased $1,804 to $7,402 for the three-month period ended March 31, 2015 from $9,206 for the three-month period ended March 30, 2014. The decrease of $1,804 was due to a decrease in the amount of interest that we incurred on loans that we obtained under our revolving credit facility with Blue Victory Holdings, Inc. (“Blue Victory Holdings”). A summary of the terms of our credit facility with Blue Victory Holdings is set forth under Note 8. Debt Obligations in our financial statements. We expect interest expense to fluctuate during the next 12 months as we continue to borrow and repay loans under our credit facility with Blue Victory Holdings.

Loss on Settlement of Litigation

Loss on the settlement of litigation consists of the loss that we incurred in connection with the settlement agreement that we entered into with J. David Eberle in January 2015. We recognized loss on the settlement of litigation of $27,142 during the three-month period ended March 31, 2015. We did not recognize any loss on the settlement of litigation during the three-month period ended March 30, 2014. A summary of the terms of our settlement agreement with Mr. Eberle is set forth under Part II – Other Information – Item 1. Legal Proceedings in this report. We do not expect to incur any additional losses on the settlement of litigation during the next 12 months.

Income From Investment in Paradise on Wings

Income from investment in Paradise on Wings consists of our share of the income from our 50% ownership interest in Paradise on Wings that we purchased on January 20, 2014. Income from investment in Paradise on Wings increased $10,865 to $15,073 for the three-month period ended March 31, 2015 from $4,208 for the three-month period ended March 30, 2014. The increase of $10,865 was primarily due to an increase of sales by Paradise on Wings. A description of our investment in Paradise on Wings is set forth under Note 4. Investment in Paradise on Wings in our financial statements. We expect to recognize additional income, and may incur losses, from our investment in Paradise on Wings during the next 12 months. The amount of such income and losses will fluctuate based on the financial results of Paradise on Wings.

Net Loss

We incurred a net loss of $24,364 during the three-month period ended March 31, 2015 compared to a net loss of $95,663 during the three-month period ended March 30, 2014. The decrease of $71,299 was due primarily to an increase of $95,258 for revenue, partially offset by an increase of $27,142 for loss on settlement of litigation. We expect net loss to decrease during the next 12 months as we generate additional revenue through our new and existing restaurants and as we generate additional income through our 50% ownership interest in Paradise on Wings. The decrease in net loss that we expect to achieve will be partially offset by greater operating expenses that we expect to incur in connection with the general growth of our business and operations. As the increase in revenue beings to outpace the increase in operating expenses, we expect to begin generating net income from our operations.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily through private sales of equity securities and the use of short- and long-term debt.

Net cash provided by operating activities was $5,753 during the three-month period ended March 31, 2015 compared to net cash used by operating activities of $191,958 during the three-month period ended March 30, 2014. The increase of $197,711 for cash provided by operating activities was due primarily to a decrease of $71,299 for net loss and increases of $27,142 for loss on settlement of litigation and $131,043 for accounts payable and accrued liabilities. This was partially offset by a decrease in advertising fund liabilities of $28,641.

Net cash used by investing activities was $1,900 during the three-month period ended March 31, 2015 compared to $399,365 during the three-month period ended March 30, 2014. The decrease of $397,465 was due primarily to a decrease of $400,000 for our equity investment in Paradise on Wings.

Net cash provided by financing activities was $102,365 during the three-month period ended March 31, 2015 compared to $592,690 during the three-month period ended March 30, 2014. The decrease of $490,325 was due to a decrease of $575,325 for the issuance of notes payable to related parties, partially offset by an increase of $85,000 for payments on stock subscriptions receivable.

Our primary sources of capital since January 1, 2014 are set forth below.

Between November 6, 2013 and January 21, 2014, we borrowed $567,662 under our credit facility with Blue Victory Holdings. Accordingly, on January 21, 2014, we had a total of $570,529 of principal and accrued but unpaid interest outstanding under the credit facility. On that date, Blue Victory Holdings converted all of the outstanding principal and interest into a total of 326,017 shares of our common stock. A summary of the terms of our credit facility with Blue Victory Holdings is set forth under Note 8. Debt Obligations in our financial statements.

On February 27, 2014, we entered into a securities purchase agreement with Seenu G. Kasturi pursuant to which Mr. Kasturi agreed to purchase 206,061 shares of our common stock for $340,000. Mr. Kasturi paid for the shares through the issuance of a promissory note in favor of the Company in the amount of $340,000. The promissory note is unsecured, accrues interest at a rate of 6% per annum, and has a maturity date of March 31, 2015. The principal and interest are payable in four equal quarterly installments of $85,000 beginning June 30, 2014.

Between January 22, 2014 and June 29, 2014, we borrowed an additional $237,410 from Blue Victory Holdings under the credit facility, and between June 30, 2014 and December 28, 2014, we repaid $233,990 under the credit facility. Accordingly, as of December 28, 2014, the outstanding principal amount of the credit facility was $3,420.

Between December 29, 2014 and May 13, 2015, we borrowed an additional $10,198 from Blue Victory Holdings under the credit facility. Accordingly, as of May 13, 2015, the outstanding principal amount of the credit facility was $13,618.

To date, our capital needs have been met primarily through cash generated by our operations, sales of our equity securities and the use of short- and long-term debt to fund our operations. More recently, we have relied upon the $1 million revolving credit facility that we obtained through Blue Victory Holdings in September 2013 and the proceeds from the promissory note issued to us by Seenu G. Kasturi in connection with the $340,000 financing transaction that we entered into with him in February 2014 to fund our operations and recent expansion efforts. We have used the proceeds from the sale of our equity securities and the issuance of short-and long-term debt to pay virtually all of the costs and expenses that we have incurred to date. These costs and expenses have been comprised primarily of the professional fees, employee compensation expenses, and general and administrative expenses discussed above.

We intend to rely primarily on cash generated by our operations, proceeds from our credit facility with Blue Victory Holdings, and proceeds from the promissory note issued to us by Seenu G. Kasturi in connection with the $340,000 financing transaction that we entered into with him in February 2014, to fund our operations and expansion efforts, including additional acquisitions of controlling and non-controlling financial interests in other restaurant brands, during the next 12 months. A summary of the material terms of our credit facility with Blue Victory Holdings is set forth under Note 8. Debt Obligations in our financial statements, and a summary of the material terms of our financing transaction with Mr. Kasturi is set forth above under Note 9. Capital Stock in our financial statements.

We can provide no assurance that these sources of capital will be adequate to fund our operations and expansion efforts during the next 12 months. If these sources of capital are not adequate, we will need to obtain additional capital through alternative sources of financing. We may attempt to obtain additional capital through the sale of equity securities or the issuance of short- and long-term debt. If we raise additional funds by issuing shares of our common stock, our stockholders will experience dilution. If we raise additional funds by issuing securities exercisable or convertible into shares of our common stock, our stockholders will experience dilution in the event the securities are exercised or converted, as the case may be, into shares of our common stock. Debt financing may involve agreements containing covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount, or declaring dividends. In addition, any equity or debt securities that we issue may have rights, preferences and privileges senior to those of the shares of common stock held by our stockholders.

We have not made arrangements to obtain additional capital and can provide no assurance that additional financing will be available in an amount or on terms acceptable to us, if at all. Our ability to obtain additional capital will be subject to a number of factors, including market conditions and our operating performance. These factors may make the timing, amount, terms and conditions of any proposed future financing transactions unattractive to us. If we cannot raise additional capital when needed, or if such capital cannot be obtained on acceptable terms, we may not be able to pay our costs and expenses as they are incurred, take advantage of future acquisition opportunities, respond to competitive pressures or unanticipated events, or otherwise execute upon our business plan. This may adversely affect our business, financial condition and results of operations and, in the extreme case, cause us to discontinue our operations.

Off-Balance Sheet Arrangements

As of March 31, 2015, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 4.

Controls and Procedures.

As of March 31, 2015, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2015, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended September 28, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

In April 2012, J. David Eberle, one of our former employees, filed a complaint against us in the Circuit Court, Fourth Judicial Circuit in and for Duval County, Florida, seeking damages for breach of contract, unjust enrichment, promissory estoppel and unpaid wages pursuant to Florida Statute § 448.08. In January 2015, we entered into a settlement agreement and release with Mr. Eberle pursuant to which we agreed to pay Mr. Eberle $100,000, such amount to be paid in six monthly payments of $16,667 beginning March 1, 2015, and agreed to issue 57,142 shares of our common stock to Mr. Eberle. In consideration thereof, Mr. Eberle agreed to release us from any and all claims that were asserted or that could have been asserted by Eberle in the legal proceeding, and the complaint was dismissed with prejudice.

In January 2015, Santander Bank filed a complaint against us in the Circuit Court, Fourth Judicial Circuit in and for Duval County, Florida, seeking damages of approximately $194,000 plus interest, costs and attorney’s fees for breach of a guaranty of certain obligations of Ritz Aviation, LLC (“Ritz Aviation”) under a promissory note executed by Ritz Aviation in July 2005. This case is currently pending.

Item 2.

Unregistered Sales of Securities and Use of Proceeds.

In January 2015, Richard Akam earned 71,429 shares of common stock under the terms of his employment agreement with the Company. The securities were issued to an accredited investor in a private placement transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. A description of Mr. Akam’s employment agreement is set forth herein under Note 6. Commitments and Contingencies.

In January 2015, the Company issued 57,142 shares of its common stock to J. David Eberle pursuant to the terms of the settlement agreement and release that the Company entered into with him in connection with the settlement of the legal proceeding commenced by Mr. Eberle against the Company in April 2012. The securities were issued to an accredited investor in a private placement transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. A summary of the terms of our settlement agreement with Mr. Eberle is set forth under Part II – Other Information – Item 1. Legal Proceedings in this report.

In February 2015, the Company issued 10,000 shares of its common stock to one of its non-executive employees as incentive compensation. The securities were issued to an accredited investor in a private placement transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

Item 6.

Exhibits.

The documents set forth below are filed as exhibits to this report.


Exhibit No.		Exhibit Description
31.1		Certification of Chief Executive Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
31.2		Certification of Chief Financial Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
32.1		Certification of Chief Executive Officer and Chief Financial Officer of the registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included within Exhibit 101 hereto are furnished and not filed herewith, are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ARC GROUP, INC.

Date: May 15, 2015	/s/ Daniel Slone
	Daniel Slone
	Chief Financial Officer
	(principal financial officer and duly authorized officer)

EXHIBIT INDEX


Exhibit No.		Exhibit Description
31.1		Certification of Chief Executive Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
31.2		Certification of Chief Financial Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
32.1		Certification of Chief Executive Officer and Chief Financial Officer of the registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

Attached files

ARC Group, Inc. Reports

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