ARC Group, Inc. Reports 71% Increase in Revenue for the Third Quarter of 2019

JACKSONVILLE, FL / ACCESSWIRE / November 15, 2019 / ARC Group, Inc. (OTCQB:RLLY), a restaurant holding company with a focus on diversified, full-service restaurants and brands, today provided a business update for the third quarter ended September 30, 2019.

Third Quarter 2019 Financial Highlights:

  • Revenue increased 71% to $4,042,644 during Q3 2019 from $2,360,064 during Q3 2018.
  • Loss from operations was $421,961 for Q3 2019 compared to $463,802 during Q3 2018.
  • EBITDA was $183,170 for the nine months ended September 30, 2019 compared to 245,965 for the nine months ended September 30, 2018.
  • Net loss was $597,514 for Q3 2019 compared to a net income of $97,467 for Q3 2018.
  • Cash flows from operating activities were $565,856 during the nine months ended September 30, 2019 compared to $235,787 during the nine months ended September 30, 2018.

A reconciliation of EBITDA on a GAAP and non-GAAP basis is included in the table below entitled “Reconciliation of GAAP to non-GAAP Financial Measures“.

Seenu G. Kasturi, CEO of ARC Group, stated, “I am pleased to report that our revenue was $4 million for the third quarter of 2019, an increase of 71% over the same period last year which reflects organic growth at Dick’s Wings and sales generated through the Fat Patty’s restaurants that we acquired in August 2018. In addition to our strong top-line growth, we continue to generate positive cash flow from operations. Although our operating expenses increased, this reflects our significant investment in the business to support the next phase of growth, including our recent acquisition of WingHouse.”

“Last month, we announced that we had acquired the WingHouse Bar & Grill® restaurant concept in Florida, providing us with 24 restaurants that generated more than $60.6 million in revenue and $3.5 million of cash flow from operating activities during 2018,” added Alex Andre, CFO and General Counsel of ARC Group. “Importantly, this acquisition increases our combined annualized revenue run rate to over $70 million and will enable us to leverage our franchising, marketing, operational, logistics and financial expertise to drive further sales growth and cash flow across all of our brands. Overall, we believe we have built a highly scalable organization, and as we continue to drive sales, we expect to generate solid margin improvement and improved profitability.”

Complete financial results are available in the Company’s Form 10-Q, which has been filed with the Securities & Exchange Commission and is available at www.sec.gov.

Non-GAAP Financial Measures

The Company prepares its condensed 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 adjusted loss from operations and EBITDA 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 loss from operations” means loss from operations plus depreciation expense, amortization expense, stock based compensation expense and gain from insurance recoveries on impaired fixed assets.

EBITDA” means net loss plus depreciation expense, amortization expense and interest expense and income taxes.

For further information, please refer to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2019 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 a holding company with a focus on the casual dining restaurant industry. ARC is the owner, operator and franchisor of Dick’s Wings & Grill®, a family-oriented restaurant franchise with four company-owned and 16 franchised restaurants located in Florida and Georgia that is now in its 25th year of operations. ARC also owns the Fat Patty’s® concept with four restaurants located in West Virginia and Kentucky, and recently acquired the WingHouse Bar and Grill restaurant concept with 24 company-owned restaurants located in Florida.

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, 2018 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.

Contact:

Crescendo Communications, LLC
Email: arck@crescendo-ir.com
Tel: 212-671-1020

(tables to follow)
 

Condensed Consolidated Balance Sheets
 

 
  September 30,     December 31,  
 
  2019     2018  
 
  (Unaudited)        
 
           
Assets
           
 
           
Cash and cash equivalents
  $ 231,180     $ 345,228  
Accounts receivable, net
    82,087       127,930  
Ad funds receivable, net
    11,443       10,500  
Other receivables
    579,984       556,986  
Prepaid expenses
    72,680       34,582  
Inventory
    195,123       211,025  
Notes receivable, net
    9,344       2,967  
Other current assets
    16,414       8,078  
 
               
Total current assets
    1,198,255       1,297,296  
 
               
Deposits
    34,779       49,421  
Notes receivable, net of current portion
    634       2,553  
Intangible assets, net
    783,739       786,565  
Property and equipment, net
    1,524,380       12,537,502  
Operating lease right-of-use assets
    3,582,774        
Financing lease right-of-use assets, net
    10,896,130        
 
               
Total assets
  $ 18,020,691     $ 14,673,337  
 
               
Liabilities and stockholders’ deficit
               
 
               
Accounts payable and accrued expenses
  $ 2,168,571     $ 1,478,745  
Accounts payable and accrued expenses – related party
    350,530       231,187  
Other payables
    555,525       544,098  
Accrued interest
    76,267       29,105  
Settlement agreements payable
    284,700       276,269  
Accrued legal contingency
    169,620       163,764  
Contingent consideration
    55,356       55,356  
Deferred franchise fees
    13,093       13,718  
Operating lease liability
    284,059        
Financing lease liability
    202,944       175,764  
Seller payable
    312,000       312,000  
Notes payable – related party, net
    770,465       720,178  
Gift card liabilities
    55,999       81,956  
 
               
Total current liabilities
    5,299,129       4,082,140  
 
               
Deferred franchise fees, net of current portion
    90,173       51,516  
Operating lease liability, net of current portion
    3,351,890        
Financing lease liability net of current portion
    11,054,732       11,210,146  
 
               
Total liabilities
    19,795,924       15,343,802  
 
               
Stockholders’ deficit:
               
 
               
Class A common stock – $0.01 par value: 100,000,000 shares authorized,
               
7,080,771 and 6,680,065 shares issued and outstanding at
               
September 30, 2019 and December 31, 2018, respectively
    70,808       66,801  
Series A convertible preferred stock – $0.01 par value: 1,000,000 shares
               
authorized, 449,581 outstanding at September 30, 2019 and
               
December 31, 2018, respectively
    4,496       4,496  
Series B convertible preferred stock – $0.01 par value: 2,500,000 shares
               
authorized, -0- outstanding at September 30, 2019 and
               
December 31, 2018, respectively
           
Additional paid-in capital
    4,635,652       4,490,338  
Stock subscriptions payable
    64,682       15,453  
Accumulated deficit
    (6,550,871 )     (5,247,553 )
 
               
Total stockholders’ deficit
    (1,775,233 )     (670,465 )
 
               
Total liabilities and stockholders’ deficit
  $ 18,020,691     $ 14,673,337  
 
               
The accompanying notes are an integral part of these financial statements
               

Condensed Consolidated Statements of Operations (Unaudited)
 

 
  For the Three Months Ended     For the Nine Months Ended  
 
  September 30, 2019     September 30, 2018     September 30, 2019     September 30, 2018  
 
                       
Revenue:
                       
Restaurant sales
  $ 3,803,609     $ 2,104,825     $ 12,150,290     $ 3,871,929  
Franchise and other revenue
    239,035       231,983       670,142       690,892  
Franchise and other revenue – related party
          23,256             100,994  
 
                               
Total revenue
    4,042,644       2,360,064       12,820,432       4,663,815  
 
                               
Operating expenses:
                               
Restaurant operating costs:
                               
Cost of sales
    1,368,797       811,009       4,447,133       1,360,529  
Labor
    1,232,549       624,848       4,103,557       1,222,554  
Occupancy
    117,436       57,713       432,463       171,048  
Other operating expenses
    844,257       381,527       2,527,402       706,978  
Professional fees
    52,828       366,956       443,984       614,123  
Employee compensation expense
    402,008       163,512       973,944       414,924  
General and administrative expenses
    446,730       418,301       878,919       720,033  
 
                               
Total operating expenses
    4,464,605       2,823,866       13,807,402       5,210,189  
 
                               
Loss from operations
    (421,961 )     (463,802 )     (986,970 )     (546,374 )
 
                               
Other (loss) / income:
                               
Interest expense
    (211,211 )     (74,258 )     (615,997 )     (85,131 )
Income from insurance proceeds
                181,588        
Gain on bargain purchase option
          624,952             624,952  
Other income
    35,658       10,575       118,061       96,103  
 
                               
Total other (loss) / income
    (175,553 )     561,269       (316,348 )     635,924  
 
                               
Net (loss) / income
  $ (597,514 )   $ 97,467     $ (1,303,318 )   $ 89,550  
 
                               
Net (loss) / income per share – basic
  $ (0.08 )   $ 0.01     $ (0.18 )   $ 0.01  
 
                               
Net (loss) / income per share – fully diluted
  $ (0.08 )   $ 0.01     $ (0.18 )   $ 0.01  
 
                               
Weighted average number of shares
                               
outstanding – basic
    7,071,985       6,524,427       7,077,875       6,795,644  
 
                               
Weighted average number of shares
                               
outstanding – fully diluted
    7,071,985       6,554,427       7,077,875       6,810,809  
 
                               
The accompanying notes are an integral part of these financial statements
                               

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

Table 1: Adjusted Loss From Operations
                       
 
                       
 
  For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
 
  2019     2018     2019     2018  
 
                       
Loss from operations (as reported)
  (421,961 )   (463,802 )   (986,970 )   (546,374 )
 
                               
Depreciation expense
    61,851       49,481       163,830       68,688  
Amortization of operating lease right-of-use assets
    82,501             250,005        
Amortization of financing lease right-of-use assets
    145,091             430,545        
Amortization of intangible assets
    942             2,826        
Amortization of debt discount
    7,847       2,596       23,285       2,596  
Stock-based compensation expense
    79,226       264,377       189,849       303,503  
Gain from insurance recoveries on impaired fixed assets
                (100,000 )      
 
                               
Adjusted loss from operations
  (44,503 )   (147,348 )   (26,630 )   (171,587 )
 
                               
 
                               
Table 2: EBITDA
                               
 
                               
 
  For the Three Months Ended
September 30,
       
    For the Nine Months Ended
September 30,
       
 
 
    2019       2018       2019       2018  
 
                               
Net (loss) / income (as reported)
  (597,514 )   97,467     (1,303,318 )   89,550  
 
                               
Depreciation expense
    61,851       49,481       163,830       68,688  
Amortization of operating lease right-of-use assets
    82,501             250,005        
Amortization of financing lease right-of-use assets
    145,091             430,545        
Amortization of intangible assets
    942             2,826        
Amortization of debt discount
    7,847       2,596       23,285       2,596  
Interest expense
    211,211       74,258       615,997       85,131  
 
                               
EBITDA
  (88,071 )   223,802     183,170     245,965  
 
                               

 

SOURCE: ARC Group, Inc.

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