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ARC Group, Inc. Announces Record Q1 2018 Financial Results

  (May 16, 2018)

JACKSONVILLE, Fla., May 16, 2018 /PRNewswire/ -- ARC Group, Inc. (OTC: ARCK), the owner, operator and franchisor of the award-winning Dick's Wings & Grill® concept, announced financial results for its first fiscal quarter of 2018 highlighted by record revenue.

The Company achieved the following financial results for its first fiscal quarter of 2018:

  • Revenue increased 14% to $1,246,662 for Q1 2018 from $1,088,796 for Q1 2017.
  • Income from operations was $48,308 during Q1 2018 compared to $210,392 during Q1 2017.
  • Adjusted income from operations, a non-GAAP measure, was $76,364 during Q1 2018 compared to $226,853 during 2016.
  • Net income was $47,614, or $0.01 per share, during Q1 2018 compared to 206,077, or $0.03 per share, during Q1 2017.
  • Adjusted net income, a non-GAAP measure, was $76,364 during Q1 2018 compared to $226,853 during Q1 2017.
  • Adjusted net income per share was $0.01 for Q1 2018 compared to $0.03 for Q1 2017.
  • Cash flows from operations was $96,620 during Q1 2018 compared to 168,446 during Q1 2017.

A reconciliation of adjusted income from operations, adjusted net income, and adjusted earnings per share on a GAAP and non-GAAP basis is included in the table below entitled "Reconciliation of GAAP to non-GAAP Financial Measures".



During Q1 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) which changed the timing of recognition of initial franchise fees as well as the reporting of advertising fund contributions and related expenditures.  ARC Group implemented this guidance using the modified retrospective transition method.  Under this method, the cumulative effect of initially adopting the guidance was recognized as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative period has not been adjusted and continues to be reported under the previous revenue recognition guidance. The adoption. 

"Our Q1 2018 results show continued strength in our business," stated Richard W. Akam, Chief Executive Officer of ARC Group.  "We expect to open additional Dick's Wings restaurants during the remainder of 2018, an are currently evaluating potential acquisitions of multiple leading restaurants brands.  In anticipation of this, we are fortifying our management team and employee base with key hires and will be reorganizing our business to better position us for our upcoming growth.  We are committed to achieving our long-term goal of transforming ARC Group into a holding company comprised of a diversified portfolio of leading brands and profitable businesses that are all strong contributors to our bottom line."

"As a result of the adoption of ASU 2014-09, we recognized deferred franchise fees in the amount of $196,478 on our balance sheet as of January 1, 2018 and an increase in our accumulated deficit by the same amount on that date," stated Seenu G. Kasturi, Chief Financial Officer of ARC Group.  "The adoption of ASU 2014-09 had the effect of increasing franchise and other revenue from related and unrelated parties by $8,625 for franchise fees and $53,232 for ad fund fees.  The effect of the ad fund fees on our revenue was negated by the recognition of $53,232 for ad fund expenses.  Accordingly, the net effect of ASU 2014-09 on our Q1 2018 operating results was to increase our revenue, income from operations and net income by $8,625."

Dick's Wings restaurants are family fun fooderys® where both families and sports fans can go to enjoy a unique restaurant experience from first bite to last call®.  Dick's Wings offers a variety of boldly-flavored menu items highlighted by its award-winning, Buffalo, New York-style chicken wings and hog wings and its Dick's Blingz® boneless chicken wings, for which it boasts 365 mouth-watering flavors.  It also offers customers a variety of fresh sandwiches, burgers, wraps, salads and signature waffle fries.  Guests enjoy these menu items in an elevated sports-themed environment that includes flat screen TVs located throughout each restaurant and children's areas filled with video games and other forms of children's entertainment. 

Dick's Wings is actively offering franchise opportunities in Florida, Georgia, Alabama, Louisiana, North Carolina and South Carolina.  For more information about Dick's Wings exciting menu offering and locations, and for additional franchising information, please visit www.dickswingsandgrill.com.

Non-GAAP Financial Measures

The Company prepares it's consolidated financial statements in accordance with United States generally accepted accounting principles ("GAAP").  In addition to disclosing financial information prepared in accordance with GAAP, this release also includes non-GAAP operating income, non-GAAP net income and non-GAAP net income per share data for the periods presented. Management uses non-GAAP financial measures internally for financial and operational decision-making and as a means to evaluate period-to-period comparisons.  The Company's management believes that these non-GAAP financial measures provide useful supplemental information to management and investors regarding the performance of the Company's core business operations, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

These non-GAAP financial measures are not recognized measures for financial statement presentation under U.S. GAAP and do not have standardized meanings.  Accordingly, they may be different from similar non-GAAP financial measures presented by other companies.  These non-GAAP financial measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures. Investors should consider these non-GAAP financial measures as a supplement to, and not as a substitute for, corresponding financial measures calculated in accordance with GAAP.

For the purposes of this press release, the following non-GAAP financial measures have the following meanings:

"Adjusted income from operations" means income from operations plus depreciation expense and stock-based compensation expense.

"Adjusted net income" means net income plus interest expense, interest income, depreciation expense, stock-based compensation expense, and other income.

"Adjusted earnings per share" means adjusted net income divided by the weighted average number of shares outstanding – basic and fully diluted.

For further information, please refer to the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2018 and available online at www.sec.gov.

For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, please see the table below entitled "Reconciliation of GAAP to Non-GAAP Financial Measures".

About ARC Group, Inc.                                                         

ARC Group, Inc., headquartered in Jacksonville, Florida, is the owner, operator and franchisor of the Dick's Wings & Grill concept.  Now in its 23rd year of operation, Dick's Wings prides itself on its award-winning chicken wings, hog wings and duck wings spun in its signature sauces and seasonings.  It also offers its own proprietary line of craft beers under the name "Dick's Craft Beers".  Dick's Wings has 15 restaurants in Florida and five restaurants in Georgia.  It also has two concession stands at TIAA Bank Field (formerly EverBank Field), home of the NFL's Jacksonville Jaguars, as well as a concession stand at Jacksonville Veterans Memorial Arena, home of the National Arena League's Jacksonville Sharks.

Safe Harbor Provision

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, that are intended to be covered by the safe harbor created thereby.  All statements other than statements of historical fact contained herein, including, without limitation, statements regarding the Company's future financial position, business strategy, plans and objectives, are forward-looking statements.  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.  Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from results proposed in such statements.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct.  Important factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, those factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and its other filings and submissions with the SEC.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made.  Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements.

 

ARC Group, Inc. 

Condensed Consolidated Balance Sheets (Unaudited) 














March 31,


December 31,






2018


2017









Assets
















Cash and cash equivalents




$

237,988


$

145,346


Accounts receivable, net




49,818


166,987


Accounts receivable, net – related party




1,640


1,505


Ad funds receivable, net




11,065


36,837


Ad funds receivable, net – related party




2,759


2,280


Inventory




51,802


45,417


Notes receivable, net




22,214


28,522


Deposits




21,458


21,189


Other current assets




12,628


5,923










     Total current assets




411,372


454,006










Notes receivable, net of current portion




4,468


5,106


Property and equipment, net




117,527


99,114










          Total assets




$

533,367


$

558,226









Liabilities and stockholders' deficit
















Accounts payable and accrued expenses




$

390,818


$

467,264


Accounts payable and accrued expenses – related party




63,883


94,150


Accrued interest




14,349


13,472


Settlement agreements payable




267,776


264,997


Accrued legal settlement




157,865


155,935


Notes payable – related party




43,551


30,503


Contingent consideration




199,682


199,682


Deferred franchise fees




31,486


-


Other current liabilities




10,881


9,147










     Total current liabilities




1,180,291


1,235,150










Deferred franchise fees, net of current portion




156,367


-










          Total liabilities




1,336,658


1,235,150









Stockholders' equity deficit:
















Class A common stock – $0.01 par value: 100,000,000 shares authorized,








      6,974,008 and 6,950,869 shares issued and outstanding at








     March 31, 2018 and December 31, 2017, respectively    




69,740


69,509


Additional paid-in capital




4,031,075


3,995,306


Stock subscriptions payable




13,350


26,853


Accumulated deficit




(4,917,456)


(4,768,592)










     Total stockholders' deficit




(803,291)


(676,924)










          Total liabilities and stockholders' deficit




$

533,367


$

558,226

 

 

ARC Group, Inc. 

Condensed Consolidated Statements of Operations (Unaudited) 














For the Three Months Ended 






March 31, 2018


March 31, 2017









Revenue:








Restaurant sales




$

984,775


$

868,476


Franchise and other revenue




233,259


177,302


Franchise and other revenue – related party




28,628


43,018









Total net revenue




1,246,662


1,088,796









Operating expenses:








Restaurant operating costs:








    Cost of sales




270,535


283,006


    Labor




254,539


268,479


    Occupancy




60,459


30,715


    Other operating expenses




212,118


170,052


Professional fees




128,913


25,620


Employee compensation expense




131,205


85,323


General and administrative expenses




140,585


15,209









Total operating expenses




1,198,354


878,404









Income from operations




48,308


210,392









Other expense:








Interest expense




(5,692)


(7,925)


Interest income




298


-


Other income




4,700


3,610









Total other expense




(694)


(4,315)









Net income




$

47,614


$

206,077









Net income per share – basic and fully diluted




$

0.01


$

0.03









Weighted average number of shares 








outstanding – basic and fully diluted




6,980,735


6,647,464

 

 

ARC Group, Inc. 

Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited) 


Table 1: Adjusted Income From Operations














For the Three Months Ended March 31, 






2018


2017









Income from operations (as reported)




$

48,308


$

210,392










Depreciation expense




5,559


3,146


Stock-based compensation expense




22,497


13,315









Adjusted income from operations




$

76,364


$

226,853

















Table 2: Adjusted Net Income and Net Income Per Share

















For the Three Months Ended March 31,






2018


2017









Net income (as reported)




$

47,614


$

206,077










Interest expense




5,692


7,925


Interest income




(298)


-


Depreciation expense




5,559


3,146


Stock-based compensation expense




22,497


13,315


Other income




(4,700)


(3,610)









Adjusted net income




$

76,364


$

226,853









Adjusted earnings per share – basic and fully diluted:















Net loss per share (as reported)




$

0.01


$

0.03










Adjusted net income per share




$

0.01


$

0.03









Weighted average number of shares 








outstanding – basic and fully diluted




6,980,735


6,647,464

 

 

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SOURCE ARC Group, Inc.

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