UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549










FORM 10-K/A

(Amendment
No. 1)










(Mark One)



| | x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
| | - | ------------------------------------------------------------------------------------



|For the fiscal year ended: | December 31, 2015 | 
|-------------------------- | ----------------- | 



| |  ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
| | - | ----------------------------------------------------------------------------------------



|For the transition period from  to .
|------------------------------------



|Commission File Number: | 000-54226 | 
|----------------------- | --------- | 







|ARC GROUP, INC.                                       
|------------------------------------------------------
|(Exact Name of registrant as specified in its charter)



| | Nevada                                   |  | 59-3649554                           | 
| | ---------------------------------------- |  | ------------------------------------ | 
| | (State or other jurisdiction             |  | (I.R.S. Employer Identification No.) | 
| | of incorporation or organization)        |  |                                      | 
| |                                          |  |                                      | 
| | 212 Guilbeau Road                        |  |                                      | 
| | Lafayette, LA                            |  | 70506                                | 
| | (Address of principal executive offices) |  | (Zip Code)                           | 



| | (904) 741-5500                                        | 
| | ----------------------------------------------------- | 
| | (Registrant’s Telephone Number, Including Area Code)  | 
| |                                                       | 
| | Securities registered under Section 12(b) of the Act: | 



| | Title of each class: |  | Name of each exchange on which registered: | 
| | -------------------- |  | ------------------------------------------ | 
| |                      |  |                                            | 
| | None                 |  | Not Applicable                             | 



Securities registered pursuant to Section
12(g) of the Act:



| | Class A Common Stock, $.01 par value per share | 
| | ---------------------------------------------- | 
| | (Title of Class)                               | 



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ̈
Yes        x No



Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act.  ̈
Yes        x No



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
1934 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 x
No  ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, 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 x
No  ̈



Indicate by check mark
if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained herein, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x



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 companyx



Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ̈
No x



The aggregate market
value of the voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common
equity was sold as of the last business day of the registrant’s most recently completed second fiscal quarter, which was
June 30, 2015, was $1,942,663.Shares of common stock held by each current
executive officer and director and by each person who is known by the registrant to own 5% or more of the outstanding common stock
have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant.  This
determination of affiliate status is not a conclusive determination for other purposes.



As of April 11, 2016, 6,592,464 shares of
the registrant’s common stock were outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



None.




















EXPLANATORY NOTE



ARC Group, Inc. is filing
this Amendment No. 1 on Form 10-K/A (this “Amendment”) to its annual report on Form 10-K for the fiscal year ended
December 31, 2015, which was originally filed on April 14, 2016 (the “Original Filing”), solely to amend Part II, Item
9A entitled “Controls and Procedures” of the Original Filing. This Amendment: (i) revises our conclusions regarding
the effectiveness of our disclosure controls and procedures, and (ii) states the specific version of the report entitled “Internal
Control – Integrated Framework”published by the Committee of Sponsoring Organizations of the Treadway Commission
that management used to evaluate the effectiveness of our internal control over financial reporting.



Except with respect to
the above change, this Amendment does not modify or update any other disclosures set forth in the Original Filing. The remaining
Items contained within this Form 10-K/A consist of all other Items originally contained in the Original Filing and are included
for the convenience of the reader.



In accordance with applicable
SEC rules, this Form 10-K/A includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the
date of this filing.



Except
as provided in this Explanatory Note, or as indicated in the applicable disclosure, this Amendment has not been updated to reflect
other events occurring after the filing of the Original Filing and does not modify or update information and disclosures in the
Original Filing affected by subsequent events. Accordingly, this Amendment should be read in conjunction with the filings that
we have made with the SEC subsequent to the date on which we filed the Original Filing, together with any amendments to those filings.

















TABLE
OF CONTENTS



|         |                                                                                                              | Page
|-------- | ------------------------------------------------------------------------------------------------------------ | ----
|         |                                                                                                              |     
|         | PART I                                                                                                       |     
|         |                                                                                                              |     
|Item 1.  | Business                                                                                                     | 3   
|         |                                                                                                              |     
|Item 1A. | Risk Factors                                                                                                 | 13  
|         |                                                                                                              |     
|Item 1B. | Unresolved Staff Comments                                                                                    | 32  
|         |                                                                                                              |     
|Item 2.  | Properties                                                                                                   | 32  
|         |                                                                                                              |     
|Item 3.  | Legal Proceedings                                                                                            | 33  
|         |                                                                                                              |     
|Item 4.  | Mine Safety Disclosures                                                                                      | 33  
|         |                                                                                                              |     
|         | PART II                                                                                                      |     
|         |                                                                                                              |     
|Item 5.  | Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 34  
|         |                                                                                                              |     
|Item 6.  | Selected Financial Data                                                                                      | 35  
|         |                                                                                                              |     
|Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 35  
|         |                                                                                                              |     
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                                   | 44  
|         |                                                                                                              |     
|Item 8.  | Financial Statements and Supplementary Data                                                                  | 44  
|         |                                                                                                              |     
|Item 9.  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         | 44  
|         |                                                                                                              |     
|Item 9A. | Controls and Procedures                                                                                      | 44  
|         |                                                                                                              |     
|Item 9B. | Other Information                                                                                            | 46  
|         |                                                                                                              |     
|         | PART III                                                                                                     |     
|         |                                                                                                              |     
|Item 10. | Directors, Executive Officers and Corporate Governance                                                       | 47  
|         |                                                                                                              |     
|Item 11. | Executive Compensation                                                                                       | 50  
|         |                                                                                                              |     
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 53  
|         |                                                                                                              |     
|Item 13. | Certain Relationships and Related Transactions, and Director Independence                                    | 55  
|         |                                                                                                              |     
|Item 14. | Principal Accounting Fees and Services                                                                       | 59  
|         |                                                                                                              |     
|         | PART IV                                                                                                      |     
|         |                                                                                                              |     
|Item 15. | Exhibits, Financial Statement Schedules                                                                      | 61  










i







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;
| | - | --------------------------------------------------------------------------



| | · | market acceptance of our restaurants and products;
| | - | --------------------------------------------------



| | · | food safety issues and other health concerns;
| | - | ---------------------------------------------



| | · | the cost of food and other commodities;
| | - | ---------------------------------------



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



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



| | · | changes in consumer preferences;
| | - | --------------------------------



| | · | our ability to identify, attract and retain qualified franchisees;
| | - | ------------------------------------------------------------------



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



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



| | · | our limited control over the activities of our franchisees;
| | - | -----------------------------------------------------------



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



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



| | · | our ability to protect our trademarks and other intellectual property;
| | - | ----------------------------------------------------------------------



| | · | competition and consolidation in the restaurant industry;
| | - | ---------------------------------------------------------



| | · | the effects of litigation on our business;
| | - | ------------------------------------------



| | · | the condition of the securities and capital markets generally;
| | - | --------------------------------------------------------------



| | · | 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 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Item 1A. Risk Factors. 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.



2







PART I



| | Item 1. | Business.
| | ------- | ---------



Overview



We wereformed
in April 2000 to develop theDick’s Wings concept, and are the operator and franchisor
of the Dick’s Wings brand of restaurants. Our concept is currently comprised of 22 franchised restaurants and two concession
stands located in the States of Florida and Georgia. 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®.



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. We intend to focus on developing brands that offer a variety of high-quality
food and beverages in a distinctive, casual, high-energy atmosphere in a diverse set of markets across the Unites States.



The
first major component of our growth strategy is the continued improvement and expansion of our legacy Dick’s Wings brand.
Key elements of our strategy include strengthening the brand, developing new menu items, improving our operations and service,
driving customer satisfaction, and opening new restaurants in new and existing markets. We believe there are meaningful opportunities
to grow the number of Dick’s Wings restaurants, and are in the process of implementing a rigorous and disciplined approach
to drive franchising sales in the United States.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 plan
to open several new Dick’s Wings restaurants in the United States during our 2016 fiscal year.



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, like our acquisition ofa 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”), in January 2014.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. We are seeking brands offering proprietary menu items that emphasize the preparation
of food with high quality ingredients, as well as unique recipes and special seasonings to provide appealing, tasty, convenient
and attractive food at competitive prices. As we acquire complementary brands, we will develop a scalable infrastructure that will
help us expand our margins as we execute upon our growth strategy. Benefits of this infrastructure may include centralized support
services for all of our brands, including marketing, menu development, human resources, legal, accounting and information systems.
Additional benefits may include the ability to cost effectively employ advertising and marketing agencies for all of our brands,
and efficiencies associated with being able to utilize a single distribution model for all of our franchised restaurants. Accordingly,
this structure should enable us to leverage our scale and share best practices across key functional areas that are common to all
of our brands.A description of our investment in Paradise on Wings is set forth herein under Note 4 – Investment
in Paradise on Wingsin our financial statements.



3







Restaurants



Our Dick’s Wings
concept is comprised of traditional restaurants like our Dick’s Wings & Grill®
restaurants, which arefull service restaurants, and non-traditional units like our Dick’s
Wings concession stands at EverBank Field. We currently have 22 Dick’s
Wings & Grill full service restaurants and two Dicks’ Wings concession stands. Of our 22 restaurants, 17 are located
in Florida and five are located in Georgia. Our concession stands at EverBank Field are located in Florida as well. All of our
restaurants are owned by franchisees, and our concession stands at EverBank Field are licensed to a third-party operator.



Our
restaurants typically rangein size from 3,500 to 5,500 square feet and require an initial capital investment per restaurant
of between $229,500 and $772,500. The initial capital investment is comprised of cash pre-opening costs and build-out costs. Factors
contributing to the fluctuation in the initial capital investment per location include the size of the property, the geographical
location, the type of construction, the cost of liquor and other licenses, and the type and amount of concessions, if any, received
from landlords. We offer lower cost conversion packages that provide our franchisees with flexibility to convert existing restaurants
into a Dick’s Wings restaurant. Because of this, some of our restaurants may be smaller or larger or cost more or less than
the typical ranges.



Dick’s Wings Menu



Our restaurants feature
a variety of menu items highlighted by our traditional and boneless Buffalo, New York-style chicken wings spun in one of our signature
sauces and seasonings. Our sauces and seasonings range in heat intensity from sweet to blazing hot and include such flavors as
Bourbon, Cajun Ranch, Caribbean Gold, Caribbean Jerk, Charlie Chan, Florida Girl, Garlic Parmesan, Georgia Girl, Gold Rush, Honey
BBQ, Jamaican Jerk, Lemon Pepper, Mango Habanero, Margarita Ranch, Ragin’ Cajun, Raspberry, Sesame, Smokey Mountain Gold,
Sriracha, Teriyaki and Victory Lane. These sauces and seasonings can be blended together to create more than 365 flavors. Our sauces
and seasonings complement and distinguish our wings and other menu offerings to create a bold flavor profile for our guests. Other
menu items that we offer include chicken tenders, quesadillas, specialty burgers and sandwiches, salads, wraps, flatbreads and
desserts. We also provide kids meal options for children. All of our restaurants offer an extensive selection of domestic, imported
and craft beers and wine, and several of our restaurants feature a full bar offering a variety of liquor and spirits. We also introduce
new menu items from time to time.



We are focused on continually
elevating our unique and high-quality food and beverage offerings. Our goal is to balance the established menu offerings that appeal
to our loyal guests with new menu items, like our Dick’s Blingz® boneless chicken wings, that increase
guest frequency and attract new guests. We believe that the development of new products can drive traffic by expanding our customer
base and help us continue to build brand leadership in food quality and taste. For all new menu roll-outs, new product launches
are combined with a new menu design and updated pricing to reflect the current economic environment, as well as our current strategic
marketing and creative plan. All of our menu items are made-to-order and are available for take-out.



4







Restaurant Atmosphere



We offer our customers a casual, family-fun restaurant environment
designed to appeal to both families and sports fans alike. Our full service restaurants have a children’s area filled with
video games and other forms of children’s entertainment that is visible from each of the tables in the restaurant, making
our restaurants an ideal place for families to take their children. Our full service restaurants also have high-definition televisions
located throughout the restaurants, making our restaurants an ideal gathering place for sports enthusiasts. We tailor the content
and volume of our video and audio programming to reflect our guests’ tastes. We believe the design of our restaurants enhances
our guests’ experiences, drives repeat visits, and solidifies the broad appeal of our brand.



Branding



We established our Dick’s
Wings brand through coordinated marketing and operational execution that ensures brand recognition, quality and consistency throughout
our concept. These efforts include marketing programs and advertising to support our restaurants. We prominently feature our Dick’s
Wings logos, checkered flags, sports memorabilia, televisions and exterior trade dress at our restaurants and as branding for our
marketing and advertising materials. Our brand is further strengthened by our emphasis on operational excellence supported by operating
guidelines and employee training in our restaurants. We believe our brand has broad appeal because it attracts customers of all
ages, our menu offers a variety of items, and our distinctive sauces allow guests to customize their experience, appealing to many
tastes. Our distinctive concept, combined with our high-quality food, makes Dick’s Wings appeal to families, children, teenagers
and adults of all ages and socio-economic backgrounds.



Franchisees and Franchise
Agreements



Our franchise program
is designed to promote consistency and quality. We believe that it is important to maintain strong and open relationships with
our franchisees. To this end, we invest a significant amount of time working with our franchisees on key aspects of the business,
including products, equipment, operational improvements and standards, and management techniques. Franchisees are approved on the
basis of their business background, evidence of restaurant management experience, net worth and capital available for investment
in relation to the scope of the proposed business relationship. Franchisees can range in size from individuals owning a single
restaurant to larger corporate entities owning several restaurants.



Franchisees are required
to execute a franchise agreement covering a standard set of terms and conditions prior to opening a Dick’s Wings restaurant.
Under our franchise agreement, we grant franchisees the right to operate restaurants using the “Dick’s Wings”
trademarks, trade dress and other intellectual property within the Dick’s Wings system, which includes uniform operating
procedures, standards for consistency and quality of products, technical knowledge, and procedures for accounting, inventory control
and management. In return, franchisees supply capital, initially by paying a franchisee fee to us in the amount of $35,000, purchasing
or leasing the land, and purchasing the building, equipment, signs, seating, inventories and supplies, and, over the longer term,
by reinvesting in the business. Franchisees are required to make weekly royalty payments to us in an amount equal to five percent
of the gross revenue they generate during the applicable week. They are also required to spend at least two percent of their gross
revenue on local advertising and contribute at least one percent, but not more than two percent, of their gross revenue to our
general advertising fund.



5







Our franchise agreements
require that each franchised restaurant be operated in accordance with our defined operating procedures, adhere to the menu established
by us, meet applicable quality, service, health and cleanliness standards, and comply with all applicable laws. We have the right
to terminate a franchise agreement if the franchisee fails to pay us royalties, make contributions and expenditures for advertising,
or otherwise operate and maintain its restaurant in accordance with the requirements of the agreement. Franchise agreements are
not assignable without our consent, and we have a right of first refusal if a franchisee proposes to sell a restaurant. The initial
term of the typical franchise agreement is 10 years with a 10-year renewal option for the franchisee, subject to conditions contained
in the franchise agreement.



We also offer area
development agreements pursuant to which we grant franchisees the right to open a specified number of Dick’s Wings restaurants
within an exclusive development area in accordance with a specified development schedule. Our area development agreement establishes
the number of restaurants that must be developed within a defined geographic area and the deadlines by which these restaurants
must open. Franchisees that enter into an area development agreement pay us an initial franchise fee of $35,000 for the first restaurant
and an area development fee determined by multiplying $15,000 by the number of additional restaurants to be opened in the area.
Each time a new restaurant is opened, a credit in the amount of $15,000 is applied towards the $35,000 initial franchise fee payable
in connection with the opening of the restaurant. The area development agreement can be terminated by us if, among other reasons,
the area developer fails to open restaurants on schedule.



Site Selection



Our site selection
process is integral to the successful execution of our growth strategy. The process begins with the selection of a proposed site
by our franchisee. Once a site proposal package is submitted to us by the franchisee, we review the proposal to determine whether
or not we will accept it. Criteria that we consider include:



| | · | local market demographics, population density and psychographic profiles;
| | - | -------------------------------------------------------------------------



| | · | occupancy rates and projected growth rates in the trade area;
| | - | -------------------------------------------------------------



| | · | the location and performance of big box retailers and nationally branded peers;
| | - | -------------------------------------------------------------------------------



| | · | available square footage, parking and lease economics;
| | - | ------------------------------------------------------



| | · | local investment and operating costs;
| | - | -------------------------------------



| | · | development and expansion constraints;
| | - | --------------------------------------



| | · | vehicle traffic patterns, visibility and access;
| | - | ------------------------------------------------



| | · | regional consumer trends and preferences;
| | - | -----------------------------------------



6







| | · | those characteristics that are similar to our most successful existing restaurants; and
| | - | ---------------------------------------------------------------------------------------



| | · | other quantitative and qualitative measures.
| | - | --------------------------------------------



We employ an opportunistic approach to
site location through our preference for end caps, freestanding units and conversions in both urban and suburban trade areas.



Operations



We believe that operational
excellence is critical to our long-term success. We define operational excellence as an uncompromising attention to the details
of our recipes, food preparation, cooking procedures, handling procedures, sanitation, cleanliness and safety. Our operations strategy
is designed to drive best-in-class restaurant operations by our franchisees and improve friendliness, cleanliness, speed of service
and overall guest satisfaction to drive long-term growth.



Our restaurants are required to be operated
in accordance with uniform operating standards and specifications relating to the selection, handling and preparation of menu items,
food quality and safety, signage, decor, equipment maintenance, cleanliness, uniforms, suppliers, facility standards, customer
service and accounting controls. We issue detailed operations manuals to our franchisees covering all aspects of our restaurant
operations, as well as food and beverage manuals that detail the preparation procedures of our recipes. Each franchisee is required
to furnish us with weekly sales and operating reports that assist us in monitoring the franchisee’s compliance with its franchise
agreement. We make both announced and unannounced inspections of our restaurants to ensure that our practices and procedures are
being followed. We systematically review the performance of our restaurants to ensure that each one meets our standards and conduct
meetings with our franchisees to discuss the results of our reviews. When a restaurant falls below minimum standards, we conduct
a thorough analysis to determine the causes, and implement marketing and operational plans to improve the restaurant’s performance.
If the restaurant’s performance does not improve to acceptable levels, the restaurant is evaluated for relocation or closing.



An important aspect
of our concept is the efficient design, layout and execution of our kitchen operations. Due to the relatively simple preparation
of our menu items, the kitchen consists of fryers, grills and food preparation stations that are arranged assembly-line style for
maximum productivity. Given our menu and kitchen design, our kitchens are staffed with hourly employees who require only basic
training before reaching full productivity. We do not require the added expense of an on-site chef. The ease and simplicity of
our kitchen operations allows us to achieve our goal of preparing quality food with minimal wait times.



Training



Our training program
is available to all of our franchisees and their staff. It offers food safety, quality assurance and other programs that are designed
to ensure that our franchisees and their staff are trained in proper food handling techniques. Before a restaurant opens for business,
each franchisee must attend and successfully complete our training program. The training program is conducted in Jacksonville,
Florida and lasts for between two and four weeks, unless we determine that additional training is needed. During our training program,
we describe our philosophies and policies for administration, marketing, general manager tasks, operations by position, food preparation,
set up and closing procedures, cleaning and sanitation, food borne illnesses and employee hygiene. We also utilize operation simulations.
We offer customized instruction as needed and offer additional or refresher training courses from time to time. Our
franchisees are certified in comprehensive state-approved food safety and sanitation courses, such as ServSafe, developed by the
National Restaurant Association.



7







Marketing and
Advertising



We market our Dicks’
Wings restaurants as family fun fooderys® where both families and sports fans can go to have a unique and
enjoyable restaurant experience from first bite to last call. Our marketing programs are designed to differentiate our Dick’s
Wings restaurants from the restaurants of our competitors and showcase our food and brand in a family fun atmosphere. These efforts
include marketing campaigns and advertising to support our restaurants. The primary goal of these efforts is to build brand awareness
throughout the areas where we have restaurants located. Our marketing and advertising campaigns are also designed to: (i) support
strong restaurant openings, (ii) drive positive same-store sales through additional visits by our existing guests and visits by
new guests, (iii) increase average order size, and (iv) increase profit margins. Given our strategy to be a neighborhood destination,
community marketing is key to driving sales and developing brand awareness in each market.



Our marketing strategy
is fact-based, using consumer insights to build brand affinity and drive menu optimization. Local advertising is developed and
implemented by our franchisees, and includes such events as live bands, car shows, pay-per-view television events and pool tournaments.
System-wide marketing, advertising and promotions are developed and implemented by us through the use of our general advertising
fund, which we use to pay for advertising costs, sales promotions, market research and other support functions. We implement periodic
promotions as appropriate to maintain and increase the sales and profits of our franchisees and strengthen our brands. We also
rely on outdoor billboard, direct mail and email advertising, as well as radio, newspapers, digital coupons, search engine marketing
and social media such as Facebook® and Twitter®, as appropriate, to attract and retain customers
for our franchisees. As part of our marketing strategy, we provide our franchisees with advertising support and guidance to ensure
that a consistent message is being delivered to the public.



Supply and Distribution



We strive to maintain
high quality standards. In furtherance of this, we establish the standards and specifications for most of the products used in
the development and operation of our restaurants and for the direct and indirect sources of most of those items. In general, we
approve the manufacturers and suppliers of the food, packaging and equipment products and other products used in our restaurants,
as well as the distributors of these products to our restaurants. We also have the right to require, and generally do require,
that our franchisees purchase products and services only from manufacturers and suppliers that we approve. We have arranged for
our franchisees to purchase food, supplies and paper goods from Florida Food Service, Inc., and purchase soda beverages from The
Coca-Cola Company. These requirements help us assure the quality and consistency of the products sold at our restaurants, and help
us protect and enhance the image of the Dick’s Wings concept and brand.



8







We provide detailed
specifications to suppliers for our food ingredients, products and supplies. To maximize our purchasing efficiencies and obtain
the lowest possible prices for our ingredients, products and supplies, we negotiate prices based on system-wide usage for our franchised
restaurants. Suppliers are chosen based upon their ability to provide competitive pricing, a continuous supply of product that
meets all safety and quality specifications, logistics expertise and freight management, customer service, and transparency of
business relationships. We have not experienced any significant continuous shortages of supplies, and believe that competitively
priced, high quality alternative suppliers are available should the need arise. We do not utilize the services of any purchasing
or distribution cooperatives.



Information Technology



All of our restaurants
are equipped with a computerized point-of-sale system. Our point-of-sale system provides effective communication between the kitchen
and the server, allowing employees to serve customers in a quick and consistent manner while maintaining a high level of control.
It includes a back office system that has the capability to provide support for inventory, payroll, accounts payable, cash management
and management reporting functions. The system also helps dispatch and monitor delivery activities in our restaurants. Our point-of-sale
system provides us with the ability to generate weekly and period-to-date operating results on a company-wide, brand-wide, regional
or individual restaurant basis. This enables us to closely monitor sales, food and beverage costs, and labor and operating expenses
at each of our restaurants. Our point-of-sale system runs on non-proprietary hardware with open architecture and offers intuitive
touch screen interface and integrated credit and gift card processing.



We intend to implement
additional technology-enabled business solutions in the future targeted at improved financial control, cost management, enhanced
guest service and improved employee effectiveness. These solutions will be designed to be used across all of our restaurants and
brands. Our strategy is to fully integrate the systems to drive operational efficiencies and enable restaurant teams to focus on
restaurant operations excellence.



Intellectual Property



We own U.S. registered
trademarks for many of the logos, designs and expressions that identify the products and services that we use in our business,
including “Dick’s Wings” and “Dick’s Wings & Grill”, and have several U.S. registered trademark
applications pending. We also have common law trademark rights for certain of our proprietary marks. We believe that our trademarks
have significant value and are important to our business. Our policy is to pursue registration of our important trademarks whenever
feasible and to oppose vigorously any infringement of our trademarks. Under current law and with proper use and registration, our
rights in our trademarks will generally last indefinitely. The use of these trademarks by our franchisees has been authorized in
our franchise agreements.



We may rely, and
in some circumstances do rely, on trade secrets and common law rights to protect our intellectual property. We have established
the standards and specifications for most of the goods and services used in the development, improvement and operation of our Dick’s
Wings restaurants. These proprietary standards, specifications and restaurant operating procedures are trade secrets owned by us.
We protect our trade secrets and proprietary information, in part, by entering into confidentiality agreements with our employees
and franchisees, and have included confidentiality provisions in our franchise agreements. We also seek to preserve the integrity
and confidentiality of our proprietary information by maintaining physical security of our premises and physical and electronic
security of our information technology systems. Notwithstanding these protective measures, trade secrets and proprietary rights
can be difficult to enforce. While we have confidence in the protective measures that we have implemented, our agreements and security
measures may be breached, and we may not have adequate remedies for any such breach.



9







Competition



The
restaurant industry is fragmented and intensely competitive. We compete directly with Buffalo Wild Wings, Hooters, Hurricane Grill
& Wings, Wings ‘N More, Wings ‘n Things, Wingstop and other restaurants offering chicken wings as one of their
primary food offerings. We also compete with local and regional sports bars and national casual dining establishments, and to a
lesser extent with quick service restaurants such as wing-based take-out concepts. Furthermore, because the restaurant industry
has few barriers to entry, new competitors may emerge at any time. We compete with other restaurants and retail establishments
on the basis of taste, quality and price of food offered, menu offering, perceived value, service, atmosphere, location and overall
dining experience. We also compete with other restaurants and retail establishments for qualified franchisees, site locations and
employees to work in our restaurants.



Many
of our direct and indirect competitors are well-established national, regional and local restaurant chains that have been in business
longer than we have, have greater consumer awareness than we do, and have substantially greater capital, marketing and human resources
than we do. Due to the continuing difficult economic environment for casual dining restaurants, coupled
with continuing pressure on consumer spending at restaurants in general, we expect that our larger
chain restaurant competitors will continue to allocate substantial financial resources to their national media advertising and
discounting programs in order to protect their respective market shares. Notwithstanding this,
we believe that our attractive price-value relationship, the atmosphere of our restaurants, our focus on customers, and the quality
and distinctive flavor of our food differentiates us from our competitors.



Government
Regulation



The
restaurant industry is subject to numerous federal, state and local laws and regulations relating to health, safety, sanitation,
and building and fire codes, including compliance with applicable zoning, land use and environmental laws and regulations. Each
of our franchisees is required to obtain various permits and licenses as part of its compliance with these laws and regulations.
Difficulties experienced by our franchisees in obtaining, or the failure by our franchisees to obtain, required licenses or approvals
could delay or prevent the development of a new restaurant in a particular area. We have implemented policies, procedures and training
to help ensure that our franchisees comply with these laws and regulations.



Our
restaurants are also subject to licensing and regulation by federal, state and local departments relating to alcoholic beverages.
Our franchisees must obtain appropriate licenses from regulatory authorities allowing them to sell liquor, beer and wine at our
restaurants. These licenses must be renewed annually and may be suspended or revoked at any time. In addition, alcoholic beverage
control regulations affect many aspects of our restaurant operations, including the minimum age of patrons and employees, hours
of operation, advertising, trade practices, wholesale purchasing, inventory control, and the handling, storage and dispensing of
alcoholic beverages. We and our franchisees may also be subject in certain states to “dram-shop” statutes, which generally
allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages
to the intoxicated person.



10







We
and our franchisees are subject to federal and state employment laws and regulations, such as the Fair Labor Standards Act and
the Immigration Reform and Control Act.  These laws and regulations govern such matters as wage and hour requirements, workers’
compensation insurance, unemployment and other taxes, working and safety conditions, and citizenship and immigration status. A
significant number of our franchisees’ service, food preparation and other employees are paid at rates related to the federal
minimum wage, which is currently $7.25 per hour. The amount that our franchisees must pay these employees is influenced by the
tip credit allowance, which is the amount that an employer is permitted to assume an employee receives in tips when the employer
calculates the employee’s hourly wage for minimum wage compliance purposes. Increases in the federal minimum wage, directly
or by either a decrease in the tip credit amount or an insufficient increase in the tip credit amount to match an increase in the
federal minimum wage, would increase our franchisees’ labor costs. In addition, employee claims based on, among other things,
discrimination, harassment, wrongful termination, wage and hour requirements, and payments to employees who receive gratuities,
may divert financial and management resources and adversely affect our operations or those of our franchisees.



We
and our franchisees must comply with applicable requirements of the Americans with Disabilities Act and related state accessibility
statutes. Under the Americans with Disabilities Act and related state laws, we and our franchisees must provide equivalent service
to disabled persons and make reasonable accommodation for their employment, and when constructing or undertaking significant remodeling
of our restaurants, we must make those facilities accessible. We and our franchisees must also comply with other anti-discrimination
lawsand regulations, such as the Civil Rights Act and the Age Discrimination Act, which mandate that people
be dealt with on an equal basis regardless of such personal traits as sex, age, race, ethnicity, nationality, sexual
orientation and gender identity.



Our
franchising activities are subject to the rules and regulations of the Federal Trade Commission (the “FTC”) as well
as the rules and regulations of the states in which we operate. The FTC’s “Franchise Rule” and other federal
and state laws regulate the sale of franchises, require registration of the franchise disclosure document with state authorities,
and require the delivery of a franchise disclosure document to prospective franchisees. These state laws often limit, among other
things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise,
and the ability of a franchisor to designate sources of supply.



The
operation of our restaurants is subject to laws and regulations relating to nutritional content, nutritional labeling, product
safety, menu labeling and other regulations imposed by the Food and Drug Administration (the “FDA”), including the
Food Safety Modernization Act. Regulations relating to nutritional labeling may lead to increased operational complexity and expenses
and may impact our franchisees’ sales.



We
and our franchisees are also subject to laws relating to information security, privacy, cashless payments and consumer credit,
protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and
standards for the protection of personal information, including social security numbers and financial information.



11







Environmental
Matters



We
and our franchisees are subject to various federal, state and local environmental regulations, and increasing focus by U.S. governmental
authorities on environmental matters is likely to lead to new governmental initiatives. Various laws concerning the handling, storage
and disposal of hazardous materials and restaurant waste and the operation of restaurants in environmentally sensitive locations
may impact aspects of our and our franchisees’ operations. To the extent these initiatives cause an increase in our franchisees’
supply or distribution costs, they may impact our business both directly and indirectly. However, we do not expect compliance with
applicable environmental regulations to have a material effect on our capital expenditures, financial condition, results of operations,
or competitive position.



Acquisitions



In January 2014, we
acquired a 50% interest in Paradise on Wings, which is the franchisor of the Wing Nutz® brand of restaurants, for
$400,000 in cash and $400,000 in shares of our common stock. The Wing Nutz concept is comprised of family-friendly, sports-themed
restaurants offering a large selection of premium baked chicken wings, boneless wings, hog wings, chicken tenders, wraps, salads,
nachos, sandwiches, quesadillas and other baked products. It also offers its own proprietary line of craft beers under the name
“Nut Job Beers”. Wing Nutz currently has nine restaurants in Utahand one restaurant
in each of Texas, Nevada and Idaho. A description of our investment in Paradise on Wings is set forth herein under Note
4 – Investment in Paradise on Wingsin our financial statements.



We
intend to acquire additional restaurant brands offering us product and geographic diversificationduring the next
12 months.



Seasonality



We
do not consider our business to be seasonal to any material degree.



Employees



As of April 11,
2016, we had a total of five employees, four of whom were full-time employees and one of which was a part-time employee. We
also utilize the services of consultants. Our franchisees are independent business owners, so their employees are not
employees of ours and, therefore, are not included in our employee count. None of our employees are represented by a labor
union, and we have never experienced a work stoppage. We believe that our relations with our employees are good.



12







Available Information



We
file reports and other materials with the Securities and Exchange Commission (“SEC”), including annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements. We make available free of charge through
our website at www.dickswingsandgrill.com all materials that we file electronically with the SEC as soon as reasonably practicable
after electronically filing or furnishing such material with the SEC. These materials are also available on the SEC’s website
at www.sec.gov, and may be read and copied by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549. Information on the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330.



The
information contained on, or accessible through, our website and the SEC’s website does not constitute a part of this report.
The inclusion of our website and the SEC’s website in this report is an inactive textual reference only.



|Item 1A. | Risk Factors
|-------- | ------------



An investment in
our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition to other
information in this report before purchasing our common stock. The risks and uncertainties described below are those that we currently
deem to be material and that we believe are specific to us, our industry and our stock. In addition to these risks, our business
may be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely
affected, the trading price of our common stock may decline and you may lose all or part of your investment.



Risks Associated
With Our Business





We have a history of losses and can provide
no assurance that we will ever become profitable.



We
incurred net losses to common stockholders of $432,730 and $193,833 for the years ended December 31, 2015 and December 28, 2014,
respectively, and had an accumulated deficit of $4,299,619 at December 31, 2015. Our future profitability is dependent upon our
ability to successfully execute our business plan. We can provide no assurance regarding when, if ever, we will become profitable.
Even if we do become profitable, we may not be able to sustain or increase profitability
on a quarterly or annual basis.Accordingly, we may continue to generate losses for the foreseeable future and, in the extreme
case, discontinue operations.







We may need to raise additional capital
in the future, which capital may not be available or, if available, may not be available on acceptable terms.



Our current cash resources
may not be sufficient to sustain our current operations for the next 12 months. Our cash outflows from operating activities were
$57,353 during the year ended December 31, 2015. We are also a party to an employment agreement with Richard W. Akam, who serves
as our Chief Executive Officer, Chief Operating Officer and Secretary, pursuant to which we are obligated to pay Mr. Akam an initial
annual base salary of $150,000. A summary of the terms of these debt obligations is set forth under Note 8. Debt Obligations
to our audited financial statements beginning on page F-1 of this report, and a summary of the terms of our employment agreement
with Mr. Akam is set forth under Item 11. Executive Compensation – Employment Agreements and Arrangements. As a result,
we may need to raise additional capital during the next 12 months to fund our operations and growth.



13







We
have historically relied upon 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, Inc. (“Blue Victory Holdings”) in September 2013 and proceeds from the promissory note issued
by Seenu G. Kasturi under the $340,000 financing transaction that we entered into with him in February 2014 to fund our operations
and recent expansion efforts. 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 by Seenu G. Kasturi under the $340,000 financing transaction
to fund our operations and expansion efforts, includingadditional acquisitions of controlling or 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 to our audited financial statements beginning on page F-1 of this report, and a summary of
the material terms of our financing transaction with Mr. Kasturi is set forth under Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Recent Developments.



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 mayhave rights, preferences and privileges senior to those
of the securities 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 or 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 operations.



We are dependent upon our franchisees
for substantially all of our revenue, and our financial results are closely tied to the operational success of our franchisees.



All of our restaurants
are franchised, and we intend to franchise any new restaurants that we open or acquire in the foreseeable future. We derive substantially
all of our revenue from our franchisees in the form of royalty payments, franchise fees and area development fees, and expect royalty
payments, franchisee fees and area development fees to comprise substantially all of our revenue for the foreseeable future. As
a result, the success of our business depends in substantial part upon the operational and financial success of our franchisees.



14







Our franchisees are
independent operators. As a result, we have limited control over how our franchisees run their respective businesses. If our franchisees
fail to execute upon our concept and capitalize upon our brand recognition and marketing, their sales may be adversely affected.
If our franchisees incur too much debt or if economic or sales trends deteriorate such that they are unable to operate their restaurants
profitably or repay existing debt, it could result in them suffering financial distress, including insolvency or bankruptcy.  If
a significant franchisee or a significant number of our franchisees become financially distressed, our operating results could
be impacted through significantly reduced or delayed royalty payments. Moreover, our franchisees may be unwilling or unable to
renew their franchise agreements with us due to low sales volumes, high real estate costs or the inability to secure lease renewals.
Any event that negatively impacts our franchisees’ sales and operations will negatively impact our revenue through corresponding
reductions in the royalty payments that we receive from our franchisees. Accordingly, any such event could have a material adverse
effect on our business, financial condition and results of operations.



Our success depends in part upon our
ability to grow the number of Dick’s Wings restaurants in our portfolio.



Our
growth strategy depends in part on our ability to open new Dick’s Wings restaurants in existing markets and new markets where
we have little or no operating experience.   While our Dick’s Wings brand has grown to 22 restaurant locations
and two concession stand locations since our founding in 2000, it is still evolving and has not yet proven its long-term growth
potential. While we believe the brand is positioned for expansion, we can provide no assurance that additional new restaurant growth
will occur. Our Dick’s Wings brand will continue to be subject to the risks and uncertainties that accompany any emerging
restaurant brand.



Our success will
depend upon our ability to identify and retain franchisees that have adequate restaurant management experience and capital, the
ability of our franchisees to open new restaurants in a timely manner, and the ability of our franchisees to operate their restaurants
in a profitable manner. To attract and retain franchisees that have adequate restaurant management experience and capital, we must
convince prospective franchisees that opening and operating one or more of our restaurants represents a profitable investment alternative.
Changes in consumer preferences, decreases in disposable consumer income, increases in labor costs and certain commodity prices,
such as food, supply and energy costs, and unfavorable publicity could negatively affect the marketability of our restaurants to
prospective franchisees.



Even
if we successfully recruit qualified franchisees, they may fail to open new restaurants in a timely manner.  Risks that
could impact our franchisees’ ability to open new restaurants include our franchisees’ ability to identify suitable
restaurant locations, negotiate acceptable lease or purchase terms for the locations, secure acceptable financing, obtain required
permits and approvals in a timely manner, hire and train qualified personnel, and meet construction schedules.



Moreover,
our franchisees may fail to operate their restaurants in a profitable manner.  Restaurant performance is affected by
the different competitive conditions, consumer tastes, and discretionary spending patterns of the people residing in the market
where the restaurant is located, as well as our franchisees’ ability to generate market awareness of the Dick’s Wings brand.
Sales at restaurants opening in new markets may take longer to reach average annual restaurant sales, thereby affecting our revenue.



15







We
can provide no assurance that we will be able to identify and retain franchisees who meet our selection criteria or, if we identify
such franchisees, that they will be successful in opening and operating their restaurants in a profitable manner. In the event
fail to identify and retain such franchisees or, in the event we do, they fail to operate their restaurants in a profitable manner,
our business, financial condition and results of operations could be adversely affected.



Strategic acquisitions
and other transactions that we complete in the future could prove difficult to integrate, disrupt our business, adversely affect
our operating results and dilute shareholder value.



Our
growth strategy depends in part on our ability to expand our business through the acquisition and development of additional restaurant
brands, like our acquisition ofa 50% ownership interest in Paradise on Wings, which is the franchisor of the Wing Nutz
brand of restaurants, in January 2014. Accordingly, we are actively seeking potential mergers, acquisitions,
joint ventures, investments and other strategic initiatives through which we can acquire or develop additional restaurant brands.



To
successfully execute any acquisition or development strategy, we need to identify suitable acquisition or development candidates,
negotiate acceptable acquisition or development terms, obtain appropriate financing, and successfully integrate any businesses
and assets acquired. Any acquisition or development transaction that we pursue, whether or not successfully completed, will subject
us to numerous risks and uncertainties, including:



| | · | our ability to accurately assess the value, growth potential, strengths, weaknesses, contingent
and other liabilities, and potential profitability of the target businesses and assets;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to complete the transaction and integrate theoperations,
technologies, services and personnel of any businesses or assets acquired;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | · | the costs associated with the completion of the transaction and the
integration of the businesses or assets acquired;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | our ability togenerate sufficient revenue to offset the transaction
costsand achieve projected economic and operating synergies;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | the diversion of financial and management resources from existing operations
and potential loss of key personnel;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | the risks associated with entering new domestic markets and conducting operations where we have
little or no prior experience;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | the possible negative impact of the transaction on our reputation and the reputation of our Dick’s
Wings brand; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | the effect of any limitations imposed by federal and state tax laws on our ability to use all or
a portion of our pre-transaction net operating losses against post-transaction income.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16







If we fail to
properly evaluate and execute any acquisition or development transactions that we pursue, our business, financial condition and
results of operations could be seriously harmed.



In
addition, acquisition and development transactions could result in us issuing equity securities or short- or long-term debt to
finance the transaction. The issuance of additional
equity securities would result in dilution to our stockholders. The issuance of securities exercisable or convertible into shares
of our common stock would result in dilution to our stockholders 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 mayhave rights, preferences and privileges senior to those of the securities held by our stockholders.
Future acquisition and development transactions could also result in us assuming debt obligations and liabilities and incurring
impairment charges related to goodwill and other intangible assets, which could harm our business, financial condition and results
of operations.



Our expected
growth could strain our personnel and infrastructure resources.



We
expect to enter a stage of rapid growth in our operations which could place a significant strain on our management, administrative,
operational and financial infrastructure.   Our future success will depend in part upon the ability of our management
to manage growth effectively.  Our existing
restaurant management systems, financial and management controls, and information and reporting systems and procedures may not
be adequate to support our planned expansion. Our
ability to manage our growth effectively will require us to continue to enhance these systems, controls and procedures and to locate,
hire, train and retain qualified management and operating personnel. If we fail to successfully manage our growth, we may
be unable to execute upon our business plan, which could have an adverse effect on our business, financial condition and results
of operations.



Our success
depends on the value and perception of our Dick’s Wings brand.



Our
success depends in large part upon our ability to maintain and enhance the value of our Dick’s Wings brand and our customers’
connection with our Dick’s Wings brand.  Brand value is based in part on consumer perceptions on a variety of subjective
qualities. While we believe we have built a strong reputation for the quality and breadth of our menu items as part of the total
experience that guests enjoy in our restaurants, negative business incidents, whether isolated or recurring and whether originating
from us, our franchisees or suppliers, could significantly reduce brand value and consumer trust, particularly if the incidents
receive considerable publicity or result in litigation.  For example, our brand could be damaged by claims or perceptions
about the quality or safety of our products or suppliers, regardless of whether such claims or perceptions are true.  Any
such incident could cause a decline in consumer confidence in, or the perception of, our brand, resulting in a decrease in the
value of our brand and consumer demand for our products. This would adversely affect our revenue, financial condition and results
of operations.



17







Unfavorable
publicity could harm our business and our brand.



Multi-unit
restaurant businesses such as ours can be adversely affected by publicity resulting from complaints or litigation, or general publicity
regarding poor food quality, food-borne illness, personal injury, food tampering, adverse health effects of consumption of various
food products or high-calorie foods (including obesity), or other concerns. Media outlets, including new social media platforms,
provide the opportunity for individuals or organizations to publicize inappropriate or inaccurate stories or perceptions about
us, our restaurants and the restaurant industry. Regardless of whether the allegations or complaints are valid, unfavorable publicity
relating to one or more of our restaurants could adversely affect public perception of our entire Dick’s Wings brand. Adverse
publicity and its effect on overall consumer perceptions of food safety, or our failure to respond effectively to adverse publicity,
could have a material adverse effect on our business and brand.



Our current
and future franchisees could take actions that could be harmful to our business.



Our
franchisees are contractually obligated to operate their restaurants in accordance with our franchise agreements, operating standards
and applicable law. Although we attempt to properly train and support our franchisees, they are independent third parties that
we do not control. Our franchisees own, operate and oversee the daily operations of their respective restaurants. As a result,
the ultimate success of any franchised restaurant rests with the franchisee. Adverse events beyond our control, such as quality
issues related to a food product or a failure to maintain quality standards at a franchised restaurant, could negatively impact
our business and brand.



Increases in
food costs could harm our profitability and the profitability of our franchisees.



Our
profitability and the profitability of our franchisees depends in part on our ability to anticipate and react to changes in food
and supply costs. The market for chicken and beef is particularly volatile and is subject to significant price fluctuations due
to seasonal shifts, climate conditions, demand for corn (a key ingredient of chicken and cattle feed), corn ethanol policy, industry
demand, commodity markets, food safety concerns, product recalls, government regulation and other factors, all of which are beyond
our control and, in many instances, unpredictable. If the price of chicken, beef or other commodities that our franchisees use
in their restaurants increases in the future and we choose not to pass, or cannot pass, these increases on to customers, our franchisees’
profitability would be negatively impacted. In addition, if we raise our prices to offset increased commodity prices, our franchisees
may experience reduced sales due to decreased consumer demand, which would have a negative impact on our franchisees’ profitability.
Any event that negatively affects our franchisees’ profitability may negatively affect their ability to pay royalties to
us and could cause them to close their restaurants. Any decline in franchisee sales would result in reduced royalty payments to
us, which in turn would adversely affect our revenue, financial condition and results of operations.



18







Changes in commodity prices and other
restaurant operating costs could adversely affect our franchisees’ results of operations.



Any increase in certain
commodity prices, such as food, supply and energy costs, could adversely affect our franchisees’ operating results.  Because
our franchisees provide competitively priced food, their ability to pass along commodity price increases to our customers is limited.  Significant
increases in gasoline prices could also result in a decrease of customer traffic at our restaurants or the imposition of fuel surcharges
by our distributors, each of which could adversely affect our franchisees’ profit margins.  Our franchisees’
operating expenses also include employee wages and benefits and insurance costs (including workers’ compensation, general
liability, property and health) which may increase over time as a result of such factors as minimum wage increases and competition.
Any such increases could adversely affect our franchisees’ profitability, which may negatively affect their ability to pay
royalties to us and could cause them to close their restaurants. This would adversely affect our revenue, financial condition and
results of operations.



Shortages or interruptions in the availability
and delivery of food and other supplies may increase our franchisees’ costs or reduce our revenue.



The products sold at
our restaurants are sourced from a wide variety of suppliers and distributors. Our franchisees are dependent upon these suppliers
and distributors to make and deliver food products and supplies that meet our specifications at competitive prices.  
Shortages or interruptions in the supply of food items and other supplies to our restaurants could adversely affect the availability,
quality and cost of the items our franchisees purchase and the operations of our restaurants.   Such shortages or disruptions
could be caused by product quality issues, production or distribution problems, the inability of our vendors to obtain credit,
the financial instability of our suppliers and distributors, the failure of our suppliers or distributors to meet our standards,
and other factors relating to the suppliers and distributors. Shortages and disruptions could also be caused by factors outside
the control of our suppliers and distributions, such as increased demand, food safety warnings or advisories, inclement weather,
natural disasters, such as floods, drought and hurricanes, and other conditions beyond their control.   A shortage or
interruption in the availability of certain food products or supplies could increase costs and limit the availability of products
critical to the operations of our restaurants, which in turn could lead to a decrease in sales and restaurant closures.  
In addition, the failure by a supplier or distributor to meet its service requirements could lead to a disruption in supplies until
a new supplier or distributor is engaged, and any such disruption could have an adverse effect on our franchisees’ operations,
which could in turn have a negative impact on our revenue and business.



Most of our
restaurants are located in the greater Jacksonville, Florida area, which subjects us to risks and uncertainties associated with
economic and other trends and developments in that region of the country.



Currently,
17 of our 22 restaurants, as well as our two concession stands in EverBank Field, are located in the greater Jacksonville, Florida
area. As a result, we are particularly susceptible to adverse trends and economic conditions in that region of the country, including
its labor markets. In addition, given our geographic concentration, negative publicity regarding any of our restaurants in that
region could have a material adverse effect on our business and operations, as could other occurrences in that region, such as
local competitive changes, changes in consumer preferences, local strikes, new or revised laws or regulations, energy shortages
or increases in energy prices, droughts, hurricanes, fires, floods or other natural disasters. In the event any of such changes
or events were to occur, our business, financial condition and results of operations could be harmed.



19







Economic conditions
have adversely effected, and may continue to adversely affect, our business and operating results.



We
believe that our sales, guest traffic and profitability are strongly correlated to consumer discretionary spending, which is influenced
by general economic conditions, disposable consumer income and, ultimately, consumer confidence. Our guests may have lower disposable
income and reduce the frequency with which they dine out due to a variety of economic factors, including higher levels of unemployment,
decreased salaries and wage rates, higher consumer debt levels, rising interest rates, increased energy prices, foreclosures, inflation,
higher tax rates, increases in commodity prices and other economic factors that may affect discretionary consumer spending. Although
the global economy has shown signs of recovery over the last three years, the United States continues to suffer from, and may continue
to suffer from, depressed economic activity. This could result in reduced guest traffic, reduced average checks or limitations
on the prices we can charge for our menu items, any of which could reduce our sales and profit margins.



The impact of
negative economic factors on our franchisees’ existing and potential landlords, developers and surrounding tenants could
also negatively affect our financial results. If our franchises’ landlords are unable to obtain financing or remain in good
standing under their existing financing arrangements, they may be unable to provide construction contributions or satisfy other
lease obligations owed to our franchisees. In addition, if our franchisees’ landlords are unable to obtain sufficient credit
to continue to properly manage their retail centers, our franchisees may experience a drop in the level of quality of such centers.
Our ability to develop new restaurants may also be adversely affected by the negative economic factors affecting developers and
potential landlords. Developers and landlords may try to delay or cancel recent development projects (as well as renovations of
existing projects) due to instability in the credit markets and recent declines in consumer spending, which could reduce the number
of appropriate locations available that we would consider for new restaurants. If any of the foregoing affect any of our franchisees’
landlords, developers or surrounding tenants, we and our franchisees could be adversely affected.



Changes in
consumer preferences regarding diet and health could harm our results of operations.



Our
success depends, in part, upon the continued popularity of our Buffalo, New York-style chicken wings, our boneless chicken wings
and our other food and beverage items, as well as the appeal of casual family dining restaurants and sports bars generally. We
also depend on trends toward consumers eating away from home. Consumer preferences could change as a result of new information
and attitudes regarding diet and health. Health concerns related to the cholesterol, carbohydrate, fat, calorie or salt content
of certain food items, including negative publicity over the health aspects of such food items, could affect consumer preferences
for our menu items. In addition, the federal government as well as a number of states, counties and cities have enacted menu labeling
laws requiring multi-unit restaurant operators to make certain nutritional information available to guests (including caloric,
sugar, sodium and fat content).



The success of
our restaurant operations depends, in part, upon our ability to effectively respond to changes in consumer health and disclosure
regulations and to adapt our menu offerings to fit the dietary needs and eating habits of our guests without sacrificing flavor.
If consumer preferences change significantly, we may be required to modify or discontinue certain of our menu items. To the extent
we are unable to respond with appropriate changes to our menu offerings, it could materially affect guest traffic and our franchisees’
sales, which would have a negative impact on our revenue and results of operations.



20







The restaurant
industry is subject to extensive federal, state and local laws, compliance with which is both complex and costly.



The
restaurant industry is subject to extensive federal, state and local laws and regulations, including:



| | · | the Fair Labor Standards Act, Immigration Reform and Control Act, and other federal and state laws
governing such employment matters as minimum wage requirements, overtime pay, tip credits, healthcare, paid leaves of absence,
mandated training, working conditions, payroll taxes, sales taxes, workers’ compensation, union memberships, citizenship
requirements and immigration;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | federal, state and local laws governing health, sanitation, safety and fire standards, the sale
of liquor, zoning, land use, traffic, and environmental and other matters, as well as the acquisition of permits and licenses in
connection therewith;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the Americans with Disabilities Act, which is a federal law that prohibits discrimination on the
basis of disability in public accommodations and employment, and other federal and state laws governing anti-discrimination, such
as the Civil Rights Act and the Age Discrimination Act;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the FTC’s “Franchise Rule” and other federal and state laws that govern the offer
and sale of franchises and other aspects of the franchisor-franchisee relationship, including terminations and the refusal to renew
franchises;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the FDA’s Food Safety Modernization Act and other federal and state laws that govern nutritional
content, nutritional labeling, product safety, menu labeling and other aspects of our restaurants’ operations; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | federal and state privacy, consumer protection and other laws.
| | - | --------------------------------------------------------------



Compliance with
all of these laws and regulations is costly and exposes us and our franchisees to the possibility of litigation and governmental
investigations and proceedings.Certain laws, such as the Americans
with Disabilities Act, could require us or our franchisees to expend significant funds to make modifications to our restaurants
if we fail to comply with applicable standards. Other rules, such as the FTC’s “Franchise Rule”, could result
in the imposition of a ban or temporary suspension on our future franchise sales and a mandate
that we make offers of rescission or restitution to our franchisees. If we or our franchisees fail to
comply with the laws and regulatory requirements of federal, state and local authorities, we and our franchisees could be subject
to, among other things, revocation of required licenses, administrative enforcement actions, fines, sanctions, and civil and criminal
liability, and of which would have an adverse effect on our business, financial condition and results of operations.



21







The sale of
alcoholic beverages at our restaurants subjects us and our franchisees to additional regulations and potential liability.



Because
our restaurants sell alcoholic beverages, we and our franchisees are required to comply with the alcohol licensing requirements
of the federal government, states and municipalities where our restaurants are located. Alcoholic
beverage control regulations require each of our franchisees to apply to a state authority and, in certain locations, county or
municipal authorities for a license or permit to sell alcoholic beverages on-premises and to provide service for extended hours
and on Sundays. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of our restaurants, including
the minimum age of patrons and employees, restaurant hours of operation, advertising and trade practices, wholesale purchasing,
inventory control and handling, the storage and dispensing of alcoholic beverages, and other relationships with alcohol manufacturers,
wholesalers and distributors. If we or our franchisees fail to comply with federal, state or local regulations, our franchisees’
licenses may be revoked and they may be forced to terminate the sale of alcoholic beverages at one or more of their restaurants.
This would have a negative impact on our franchisees’ sales and our revenue.



In
addition, we and our franchisees are subject to state and local “dram shop” statutes, which may subject us and our
franchisees to uninsured liabilities. These statutes generally allow a person injured by an intoxicated person to recover damages
from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Because a plaintiff may seek punitive
damages, which may not be fully covered by insurance, this type of action could have an adverse impact on our and our franchisees’
financial condition and results of operations. Further, adverse publicity resulting from any such allegations may adversely affect
our business and our brand.



Food safety
and food-borne illness concerns may have an adverse effect on our business.



Food
safety is a top priority for us, and we dedicate substantial resources to ensure that our guests enjoy safe, quality food products.
Notwithstanding this, food-borne illnesses, such as E. coli, hepatitis A, trichinosis, “mad cow disease” or salmonella,
and food safety issues, such as food tampering, contamination or adulteration, have occurred in the restaurant industry in the
past and could occur in the future. If one of our customers becomes ill from food-borne illnesses or as a result of food safety
issues, all of our restaurants may be temporarily closed.  In addition, instances or allegations of food-borne illness
or food safety issues, real or perceived, involving our restaurants, restaurants of our competitors, or restaurant suppliers or
distributors (regardless of whether we use or have used those suppliers or distributors), or otherwise involving the types of food
served at our restaurants, could result in negative publicity that could adversely affect our franchisees’ sales. The occurrence
of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, which
could result in disruptions in our supply chain. Any report or publicity linking us or one of our restaurants to instances of food-borne
illness or food safety issues could adversely affect our brand and reputation as well as our revenue and profits, and possibly
lead to litigation.



Health concerns
arising from outbreaks of viruses may have a material adverse effect on our business.



The
United States and other countries have experienced, and may experience in the future, outbreaks of viruses, such as H1N1,
or “swine flu,” avian flu, SARS and various other forms of influenza.
Some viruses, such as avian flu, may cause fear about the consumption of chicken, eggs and other products derived from poultry,
which could cause customers to consume less poultry and related products. Avian flu outbreaks could also adversely affect the price
and availability of poultry. Other viruses, such as H1N1, may be transmitted through human contact. The risk of contracting viruses
could cause employees or guests to avoid gathering in public places, which could adversely affect restaurant guest traffic or the
ability to adequately staff restaurants.   We could also be adversely affected if jurisdictions in which we have restaurants
impose mandatory closures, seek voluntary closures or impose restrictions on the operation of our restaurants.   Even
if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection
or health risk may negatively affect our business.



22







Our failure
or inability to enforce our trademarks, trade secrets and other proprietary rights could adversely affect our competitive position
or the value of our brand.



We
own U.S. registered trademarks for many of the signs, designs and expressions that identify the products and services that we use
in our business, including “Dick’s Wings” and “Dick’s Wings & Grill”, and have several
U.S. registered trademark applications pending. We also have common law trademark rights for certain of our proprietary marks,
and rely upon trade secrets to protect certain of our rights. We believe that our trademarks, trade secrets and other proprietary
rights have significant value and are important to our business and competitive position. We, therefore, devote time and resources
to the protection of these rights. Our policy is to pursue registration of our important trademarks whenever feasible and to oppose
vigorously any infringement of our trademarks. We protect our trade secrets and proprietary information, in part, by entering into
confidentiality agreements with our employees and consultants, and have included confidentiality provisions in our franchise agreements.
We also seek to preserve the integrity and confidentiality of our proprietary information by maintaining physical security of our
premises and physical and electronic security of our information technology systems.



We
cannot assure you that the protective actions that we take will successfully prevent unauthorized use or imitation of our intellectual
property and proprietary rights by other parties. In the event third parties unlawfully use or imitate our intellectual property
and proprietary rights, we could suffer harm to our image, brand and competitive position. If we commence litigation to enforce
our intellectual property and proprietary rights, we will incur significant legal fees and may not be successful in enforcing our
rights. Moreover, we cannot assure you that third parties will not claim infringement by us of their intellectual property and
proprietary rights in the future. Any such claim, whether or not it has merit, could be time-consuming and distracting for management
to defend, result in costly litigation, require us to enter into royalty or licensing agreements, or cause us to change existing
menu items or delay the introduction of new menu items. As a result, any such claim could have a material adverse effect on our
business, financial condition and results of operations.



We may be unable
to compete effectively in the restaurant industry.



The
restaurant industry is fragmented and intensely competitive. We compete with Buffalo Wild Wings, Hooters, Hurricane Grill &
Wings, Wings ‘N More, Wings ‘n Things, Wingstop and other restaurants offering chicken wings as one of their primary
food offerings. We also compete with local and regional sports bars and national casual dining and quick casual establishments,
and to a lesser extent with quick service restaurants such as wing-based take-out concepts. Furthermore, because the restaurant
industry has few barriers to entry, new competitors may emerge at any time. We compete with other restaurants and retail establishments
on the basis of price, taste and quality of food, menu offering, perceived value, customer service, atmosphere, location and overall
dining experience. We also compete with other restaurants and retail establishments for qualified franchisees, site locations and
employees to work in our restaurants.



23







Many
of our competitors have significantly greater financial and other resources than we do. Many of our competitors also have greater
influence over their respective restaurant systems than we do because of their significantly higher percentage of company-owned
restaurants and/or ownership of franchise real estate, giving them a greater ability to implement operational initiativesand
business strategies. Some of our competitors are local restaurants that,
in some cases, have a loyal guest base and strong brand recognition within a particular market.As our competitors expand
their operations and as new competitors enter the industry, we expect competition to intensify.Increased competition could
result in price reductions, decreases in profitability and loss of market share by our franchisees.In the event we are unable to compete successfully with our current and future competitors, our business, financial condition and
results of operations could be materially and adversely affected.



We and our
franchisees may be subject to increased labor and insurance costs.



Our
restaurant operations are subject to federal and state laws governing such matters as minimum wages, working conditions, overtime
and tip credits. As federal and state minimum wage rates increase, we and our franchisees may need to increase not only the wages
of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages,
increased employee turnover and health care mandates could also increase labor costs. In addition, the current premiums that we
and our franchisees pay for various types of insurance may increase at any time, thereby further increasing costs. The dollar amount
of claims that we and our franchisees actually incur under our respective insurance policies may also increase at any time, thereby
further increasing costs. Additionally, the decreased availability of property and liability insurance has the potential to negatively
impact the cost of premiums and the magnitude of uninsured losses incurred by us and our franchisees. The occurrence of any of
these events could have a negative impact on our business.



Our franchisees
may not be able to obtain and maintain licenses and permits necessary to operate our restaurants.



The
restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale
of food and alcoholic beverages, all of which are subject to change from time to time. To comply with these regulations, our franchisees
must obtain licenses and permits to operate their restaurants. Typically,
the licenses and permits must be renewed annually and may be revoked, suspended or denied renewal for cause at any time if governmental authorities
determine that our franchisees’ operations violate applicable regulations. The failureof our franchisees to
obtain and maintain these licenses and permits could delay or result in our decision to cancel the opening of new restaurants or
result in the temporary suspension or permanent shutdown of existing restaurants, any of which would adversely affect our business.



Our franchisees
must attract and retain qualified restaurant personnel to operate our restaurants.



Our
future performance will dependupon the ability of our franchisees to attract, motivate, develop and retain a sufficient
number of qualified restaurant personnel, including restaurant managers and hourly employees. Competition
for these employees is intense, and the availability of staff varies widely from restaurant to restaurant. If our franchisees lose
the services of their restaurant staff and are unable to replace them with qualified personnel as needed, or if restaurant management
and staff turnover increases, we could suffer from significant indirect costs, including restaurant disruptions due to management
changeover, potential delays in new restaurant openings, or adverse guest reactions toinadequate
guest service levels due to staff shortages, all of which would adversely affect our business and brand.



24







We could be
party to litigation that could adversely affect us by diverting management attention, increasing our expenses and subjecting us
to significant monetary damages and other remedies.



From
time to time, we may be subject to complaints or lawsuits by restaurant guests and employees alleging that they suffered an illness
or injury after a visit to one of our restaurants, or that we have problems with food quality or operations. We may also be subject
to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims,
and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and other matters.
In addition, the restaurant industry has been subject to a growing number of claims relating to the nutritional content of food
products, as well as claims that the menus and practices of restaurant chains have led to the obesity of some customers. A number
of these industry lawsuits have resulted in the payment of substantial damages by defendants.



In
the event we are subject to these types of claims in the future, such claims may be expensive to defend against and may divert
resources away from our operations, regardless of whether any such claims are valid or whether we are ultimately held liable. In
the event we are found liable for any such claims, we could be required to pay substantial damages. With respect to insured claims,
a judgment for monetary damages in excess of any insurance coverage that we have could result in us being required to pay substantial
damages.  Any adverse publicity resulting from these claims may also adversely affect our reputation. Any such payments
of damages or adverse publicity could have a material adverse effect on our business, financial condition and results of operations.



We depend upon
our executive officers and may not be able to retain or replace these individuals or recruit additional personnel, which could
harm our business.



We
believe that we have benefited substantially from the leadership and experience of our executive officers, including our Chief
Executive Officer, Richard W. Akam. Our executive officers may terminate their employment with us at any time without penalty,
and we do not maintain key person life insurance policies on any of our executive officers. The loss of the services of any of
our executive officers could have a material adverse effect on our business and prospects, as we may not be able to find suitable
individuals to replace such personnel on a timely basis. In addition, any such departure could be viewed in a negative light by
investors and analysts, which could cause our common stock price to decline. As our business expands, our future success will depend
greatly on our continued ability to attract and retain highly skilled and qualified executive-level personnel. Our inability to
attract and retain qualified executive officers could impair our growth and harm our business.



25







Our current
insurance may not provide adequate levels of coverage against claims.



We
currently maintain insurance that we believe is appropriate for a business of our size and type. However, there are types of losses
we may incur that cannot be insured against or that we believe are not economically reasonable to insure against. Such losses could
have a material adverse effect on our business and results of operations. In addition, we self-insure a portion of our expected
losses under our insurance policies. Unanticipated changes in the actuarial assumptions and management estimates underlying our
reserves for these losses could result in materially different amounts of expense under these programs, which could have a material
adverse effect on our business, financial condition and results of operations.



Our inability or failure to recognize,
respond to and effectively manage the accelerated impact of social media could materially adversely impact our business.



There has been a marked increase in the
use of social media platforms, including weblogs (blogs), social media websites, and other forms of Internet-based communications
that provide individuals with access to a broad audience of consumers and other interested persons. Many social media platforms
immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content
posted. Information posted on such platforms may be inaccurate or adverse to our interests, and we may have little or no opportunity
to redress or correct the information. The dissemination of such information online, regardless of its accuracy, could harm our
business, reputation and brand.



Other risks associated
with the use of social media include improper disclosure of proprietary information, personally identifiable information and out-of-date
information, as well as fraud, by our customers, employees and business partners. The inappropriate use of social media by our
customers, employees or business partners could increase our costs, lead to litigation or result in negative publicity that could
damage our business, reputation and brand.



Our
business may be harmed by disruptions to our computer hardware, software and Internet applications.



We
rely on information systems across our operations, including, for example, point-of-sale processing in our restaurants, the management
of our supply chain, the collection of cash, the payment of financial obligations, and various other processes and procedures.
Our ability to efficiently manage our business depends on the reliability and capacity of these systems. The failure of these systems
to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems, or a breach in security of
these systems could cause delays in customer service and reduce efficiency in our operations.In addition, while our computer
and communications hardware is protected through physical and software safeguards, it remains vulnerable to fire, storm, flood,
power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events. If
we fail to maintain the necessary computer capacity and data to support our accounting and billing departments, for example, we
could experience a loss of, or delay in receiving, revenue. Significant capital expenditures may be
required to remediate any of the above problems, the payment of which could adversely affect our business, financial condition
and results of operations.



26







Failure to protect the integrity and
security of personal information of our customers and employees could result in substantial costs, expose us to litigation and
damage our reputation.



We receive and maintain
certain personal information about our customers and employees. The use of this information is regulated by applicable law, as
well as by certain third-party contracts. If our security and information systems are compromised, or our employees, franchisees
or vendors fail to comply with these laws and regulations, this information could be obtained by unauthorized persons or used inappropriately.
We could incur substantial costs, sustain damage to our reputation, suffer a loss of customer confidence, and be subject to government
enforcement actions and litigation as a result, any of which could harm our business, financial condition and results of operations.



We rely on
third parties for most of our management information systems and for other back-office functions.



We
use third-party vendors to provide, support and maintain most of our management information systems. We also outsource certain
accounting, payroll and human resource functions to third-party service providers. The parties that we utilize for these services
may not be able to handle the volume of activity or perform the quality of service necessary for our operations. The failure of
these parties to fulfill their support and maintenance obligations or service obligations could disrupt our operations and the
operations of our franchisees. Furthermore, the outsourcing of certain of our business processes could negatively impact our internal
control processes. Any such effects on our operations or internal controls could have an adverse effect on our business.



The impact
of new restaurant openings could result in fluctuations in our financial performance.



As
discussed above, we plan to open several new Dick’s Wings restaurants during our 2016 fiscal year. Each time we enter into
a franchise agreement for a new restaurant, we are entitled to receive a franchise fee in the amount of $30,000. In addition, when
new restaurants open, they typically generate significant guest traffic and, therefore, high sales in their initial months. Over
time, these restaurants may experience a decrease in guest traffic and sales compared to their opening months. Accordingly, sales
achieved by new restaurants during their initial months of operation may not be indicative of the results they will generate on
an ongoing basis in the future. As a result, due to the foregoing factors, results for one fiscal quarter may not be indicative
of results to be expected for any other fiscal quarter or for a full fiscal year.



Significant
adverse weather conditions and other disasters could negatively impact our results of operations.



Our restaurants could
be negatively affected by adverse weather conditions and acts of god, such as regional winter storms, fires, floods, hurricanes,
tropical storms and earthquakes, and other disasters, such as oil spills and nuclear meltdowns. Most of our restaurants are located
in northern Florida, making them particularly susceptible to hurricanes, tropical storms and flooding. The occurrence of any such
events could cause substantial damage to our restaurants and result in one or more of our restaurants being closed for an indefinite
period of time. Such damages could also subject our franchisees to substantial repair costs. Accordingly, any such events could
have a material adverse effect on our business, financial condition and results of operations.



27







Risks Related to Our Stock



Future sales of our common stock may
cause our stock price to decline.



As of April 11,
2016, there were 6,592,464 shares of our common stock outstanding. Of this number, 1,979,022 shares were freely tradable
without restriction, unless the shares are purchased by our affiliates. The remaining 4,613,442 shares were “restricted
securities” as that term is defined under Rule 144 of the Securities Act. None of our directors, executive officers or
employees is subject to lock-up agreements or market stand-off provisions that limit their ability to sell shares of our
common stock. The sale of a large number of shares of our common stock, or the belief that such sales may occur, could cause
a drop in the market price of our common stock.



We may raise additional funds in the
future through the issuances of debt or equity securities, which funding may be dilutive to stockholders or impose operational
restrictions on us.



We may need to raise
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 mayhave rights, preferences and privileges senior
to those of the securities held by our stockholders.



The market price of our common stock
is likely to be highly volatile and subject to wide fluctuations.



The
market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot control,
including:



| | · | fluctuations in our annual or quarterly operating results;
| | - | ----------------------------------------------------------



| | · | changes in capital market conditions or other adverse economic conditions;
| | - | --------------------------------------------------------------------------



| | · | upgrades or downgrades by securities analysts following our stock;
| | - | ------------------------------------------------------------------



| | · | changes in financial estimates by securities analysts following our stock;
| | - | --------------------------------------------------------------------------



| | · | our achievement, or our failure to achieve, projected financial results;
| | - | ------------------------------------------------------------------------



| | · | future sales of our stock by our officers, directors and significant stockholders;
| | - | ----------------------------------------------------------------------------------



| | · | investors’ perceptions of our business and prospects relative to other investment alternatives;
| | - | -----------------------------------------------------------------------------------------------



| | · | significant contracts, acquisitions, joint ventures or capital commitments by our competitors;
| | - | ----------------------------------------------------------------------------------------------



| | · | global economic, legal and regulatory factors unrelated to our performance; and
| | - | -------------------------------------------------------------------------------



| | · | the other risks and uncertainties set forth herein under Item 1A. Risk Factors and elsewhere
in this report.
| | - | ------------------------------------------------------------------------------------------------------------



28







The stock market has
experienced significant price and volume fluctuations that have affected the market price of the stock of many companies and that
often have been unrelated or disproportionate to the operating performance of these companies. Market fluctuations such as these
may seriously harm the price of our common stock. Further, securities class action suits have been filed against companies following
periods of market volatility in the price of their securities. If such an action is instituted against us, we may incur substantial
costs and a diversion of management attention and resources, which would seriously harm our business, financial condition and results
of operations. In addition, the initiation of any such action could cause the price of our common stock to decline.



Our quarterly
and annual operating results may fluctuate due to increases and decreases in sales, food costs, and other factors.



Our
quarterly and annual operating results may fluctuate significantly because of a variety of factors, including:



| | · | increases or decreases in same-store sales;
| | - | -------------------------------------------



| | · | the timing of new restaurant openings;
| | - | --------------------------------------



| | · | our ability to operate effectively in new markets;
| | - | --------------------------------------------------



| | · | the profitability of our restaurants, particularly in new markets;
| | - | ------------------------------------------------------------------



| | · | labor availability and costs for hourly and management personnel;
| | - | -----------------------------------------------------------------



| | · | changes in consumer preferences and competitive conditions;
| | - | -----------------------------------------------------------



| | · | negative publicity relating to us, our restaurants, our vendors or the products we serve;
| | - | -----------------------------------------------------------------------------------------



| | · | disruptions in the type and delivery of supplies;
| | - | -------------------------------------------------



| | · | consumer confidence and fluctuations in discretionary spending;
| | - | ---------------------------------------------------------------



| | · | changes in labor costs or other variable expenses;
| | - | --------------------------------------------------



| | · | potential distractions or unusual expenses associated with our expansion plans;
| | - | -------------------------------------------------------------------------------



| | · | the impact of inclement weather, natural disasters, and other calamities; and
| | - | -----------------------------------------------------------------------------



| | · | economic conditions in the jurisdictions in which we operate and nationally.
| | - | ----------------------------------------------------------------------------



As
a result of the factors discussed above, as well as some of the other factors set forth herein under Item 1A. Risk Factors
and elsewhere in this report, our operating results for one quarter or year are not necessarily indicative of results to be expected
for any other quarter or year. These fluctuations may cause future operating results to fall below our estimates or the expectations
of our stockholders or the investment community in general.If our results of operations do not meet the expectations of
our stockholders or the investment community, the price of our common stock may decline.



29







William D. Leopold
owns approximately 35% of our outstanding common stock and has the ability to exert significant control over our business and affairs,
which may prevent us from taking actions that may be favorable to our other stockholders.



As of April 11,
2016, William D. Leopold beneficially owned approximately 35% of our outstanding common stock. As a result, Mr. Leopold has
the ability to exert substantial influence over any matters requiring approval by our stockholders, including the election
and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. This
concentration of ownership could have the effect of delaying, deferring or preventing a change in control of us or impeding a
merger or consolidation, takeover or other business combination involving us that could be favorable to you.



An active trading market for our
shares of common stock does not currently exist and we can provide no assurance that such a market will develop in the future.



Our shares of common
stock are thinly traded. Only a small percentage of our common stock is available to be traded and the price, if traded, may not
reflect our actual or perceived value. The liquidity of our stock will be dependent on the perception of our operating business,
among other things. Investors may not be able to liquidate their investment or liquidate it at a price that reflects the value
of the business. Conversely, trading may be at an inflated price relative to our performance due to, among other things, the lack
of available sellers of our shares. Because there may be a low price for our shares of common stock, many brokerage firms or clearing
firms may not be willing to effect transactions in the securities or accept shares of our common stock for deposit in an account.
Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage
commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions
will not permit the use of low priced shares of common stock as collateral for any loans. We can provide no assurance that an active
trading market for our shares of common stock will develop in the future.



Our shares of common stock are not listed
for trading on a national securities exchange.



Our common stock currently
trades on the OTCQB marketplacemaintained by the OTC Markets Group, Inc. (the “OTCQB”)
and is not listed for trading on a national securities exchange. Investments in securities trading on the OTCQB are generally less
liquid than investments in securities trading on a national securities exchange. The failure of our shares to be approved for trading
on a national securities exchange may have the effect of limiting the trading activity of our common stock and reducing the liquidity
of an investment in our common stock.



We
identified  material weaknesses in our internal control over financial reporting during the assessment of our internal
controls that we performed in connection with the preparation of the audited financial statements included in this
report.



Rules adopted by
the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require management to complete an annual assessment of our
internal control over financial reporting. During the preparation of our audited financial statements for the year ended
December 31, 2015, we identified several  control deficiencies that have been classified as  material weaknesses in our internal
control over financial reporting. A material weakness is a control deficiency that results in a more than remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely
basis by employees in the normal course of their assigned functions. Based on the material weaknesses identified, management
concluded that our internal control over financial reporting was not effective as of December 31, 2015. A description of the
material weakness is set forth herein under Item 9A. Controls and Procedures.



30







The standards that
must be met for management to assess the internal control over financial reporting are complex and require significant documentation,
testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing the activities
necessary to make future assessments of our internal control over financial reporting and completing the implementation of any
necessary improvements. Future assessments may require us to incur substantial costs and may require a significant amount of time
and attention of management, which could seriously harm our business, financial condition and results of operations.



If we are unable
to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately
or prevent fraud.



Effective
internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment
existed, and our business and reputation with investors may be harmed. We have not performed an in-depth analysis to determine
if historical undiscovered failures of internal controls exist, and may in the future discover areas of our internal control that
need improvement. If we are unable to establish and maintain an effective system of internal control, we may not be able to report
our financial results accurately or prevent fraud.



We are not required to obtain an attestation
report on our assessment of our internal control over financial reporting from an independent registered public accounting firm,
which may cause investors to lose confidence in us and cause our stock to be negatively impacted.



Under
rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are not required to obtain from our independent
registered public accounting firm an attestation report on our assessment of our internal control over financial reporting, and
we have not voluntarily sought such a report in the past. If we do not voluntarily seek to obtain an unqualified attestation report
on our assessment of our internal control over financial reporting from our independent registered public accounting firm, or if
we seek to obtain such a report but our independent registered public accounting firm is unable to provide one to us, investors
may lose confidence in us and our stock may be negatively impacted.



We are not subject to certain of the
corporate governance provisions of the Sarbanes-Oxley Act of 2002 and, without voluntary compliance with such provisions, we will
not receive the benefits and protections they were enacted to provide.



Since our common stock
is not listed for trading on a national securities exchange, we are not subject to certain of the corporate governance rules established
by the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002. These rules relate to independent director standards,
director nomination procedures, audit and compensation committees standards, the use of an audit committee financial expert and
the adoption of a code of ethics.



31







Our board of directors
currently consists of Fred D. Alexander and Ketan B. Pandya. Mr. Alexander is not an “independent director” as such
term is defined by any of the national securities exchanges. As a result, we do not have a board of
directors comprised of a majority of independent directors.Our board of directors has not created a separately-designated
standing audit committee, and neither Mr. Alexander nor Mr. Pandya qualifies as an “audit committee financial expert”
as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. Unless we voluntarily elect
to fully comply with all of these rules, we will not receive the benefits and protections they were enacted to provide.



Applicable SEC rules governing the
trading of “penny stocks” may limit the trading and liquidity of our common stock, which may affect the trading price
of our common stock.



Our common stock is
a “penny stock” as defined under Rule 3a51-1 of the Exchange Act and is accordingly subject to SEC rules and regulations
that impose limitations upon the manner in which our common stock can be publicly traded. These regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated
risks. Under these regulations, certain brokers who recommend penny stocks to persons other than established customers or certain
accredited investors must make a special written suitability determination regarding the purchaser and receive the purchaser’s
written agreement to participate in the transaction prior to sale. These regulations may have the effect of limiting the trading
activity of our common stock and reducing the liquidity of an investment in our common stock.



We have never paid any dividends on
our common stock and do not intend to pay any dividends on our common stock in the foreseeable future.



We have never paid
any dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future. We intend
to use any cash generated from our operations for reinvestment in the growth of our business. Any determination
to pay dividends in the future will be made by our board of directors and will depend upon our results of operations, financial
condition, contractual restrictions, restrictions imposed by applicable law, and other factors deemed relevant by our board of
directors. Accordingly, realization of a gain on stockholders’ investments in our common stock will depend on the appreciation
of the price of our common stock. We can provide no assurance that our common stock will appreciate in value or even maintain the
price at which stockholders purchased their shares.



| | Item 1B. | Unresolved Staff Comments.
| | -------- | --------------------------



None.



| | Item 2. | Properties.
| | ------- | -----------



Our corporate headquarters is located at
6327-4 Argyle Forest Boulevard, Jacksonville, Florida. We believe
that our corporate headquarters is adequate to support our operations for the next 12 months.



32







Item 3. Legal Proceedings.



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 4. Mine Safety Disclosures.



Not Applicable.



33







PART II



| | Item 5. | Market For Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
| | ------- | ------------------------------------------------------------------------------------------------



Market Information



Our common stock currently
trades on the OTCQB under the symbol “ARCK.” The first reported trade of our common stock
occurred on December 30, 2010.The following table sets forth the range of high and low bid quotations for shares of our
common stock for the periods indicated as reported by The Nasdaq Stock Market. The quotations represent inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual transactions.



|                                    |  | High |      |  | Low |  
|----------------------------------- |  | ---- | ---- |  | --- | -
|                                    |  |      |      |  |     |  
|Fiscal Year Ended December 31, 2015 |  |      |      |  |     |  
|                                    |  |      |      |  |     |  
|Quarter ended March 31, 2015        |  | $    | 0.60 |  |     | $
|                                    |  |      |      |  |     |  
|Quarter ended June 30. 2015         |  | $    | 0.55 |  |     | $
|                                    |  |      |      |  |     |  
|Quarter ended September 30, 2015    |  | $    | 0.52 |  |     | $
|                                    |  |      |      |  |     |  
|Quarter ended December 31, 2015     |  | $    | 0.60 |  |     | $
|                                    |  |      |      |  |     |  
|Fiscal Year Ended December 28, 2014 |  |      |      |  |     |  
|                                    |  |      |      |  |     |  
|Quarter ended March 30, 2014        |  | $    | 2.05 |  |     | $
|                                    |  |      |      |  |     |  
|Quarter ended June 29, 2014         |  | $    | 2.19 |  |     | $
|                                    |  |      |      |  |     |  
|Quarter ended September 28, 2014    |  | $    | 0.91 |  |     | $
|                                    |  |      |      |  |     |  
|Quarter ended December 28, 2014     |  | $    | 0.50 |  |     | $



The last reported trading
price of our common stock as reported on the OTCQB on April 11, 2016 was $0.60 per share.



Holders



As of April 11, 2016, the
number of stockholders of record of our common stock was 57.



Dividends



We have not paid any dividends
on our common stock to date, nor do we intend to pay any dividends on our common stock in the foreseeable future. We intend to
retain future earnings, if any, to finance the growth of our business.



Transfer Agent



The transfer agent for
our common stock is Island Stock Transfer, 15500 Roosevelt Boulevard, Suite 301, Clearwater,
Florida 33760.



34







Recent Sales of Unregistered Securities



None.



| | Item 6. | Selected Financial Data.
| | ------- | ------------------------



Not
Applicable.



| | Item 7. | 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 and elsewhere in this report. See also
“Special Note Regarding Forward-Looking Statements” on page 1 of this report. The following should be read in
conjunction with our audited financial statements beginning on page F-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
marketplace 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 toRules 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 wereformed in April 2000 to develop theDick’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 arefull service restaurants, and non-traditional units like our two
Dick’s Wings concession stands that we have at EverBank Field. We currently have 22 full-service restaurants and our two Dick’s Wings concession stands
at EverBank Field. Of our 22 restaurants, 17 are located in Florida and five are located in Georgia. Our concession stands at EverBank
Field are also located in Florida. All of our restaurants are owned by franchisees, and our concession stands at EverBank Field
are licensed to a third-party operator.



35







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 Wingsin our financial
statements.



Financial Results



We
achievedrevenue of $966,931 for the year ended December 31, 2015, compared to $588,856 for the year ended December
28, 2014, representing an increase of 64%. Our total operating expenses increased $131,674 to $920,485 for the year ended
December 31, 2015 from $788,811 for the year ended December 28, 2014. Net loss was $432,730 for the year ended December 31,
2015, compared to $193,833 for the year ended December 28, 2014. Our total assets decreased $101,693 to $795,638 at
December 31, 2015 from $897,331 at December 28, 2014, and our total debt decreased $7,420 to $7,000 at December 31, 2015 from
$14,420 at December 28, 2014. We had a stockholders’ deficit of $396,079 at December 31, 2015 compared to a
stockholders’ deficit of $119,503 at December 28, 2014. We generated negative cash flows from operations of $57,353
during the year ended December 31, 2015 compared to negative cash flows from operations of $221,617 during the year ended
December 28, 2014, representing a decrease of $164,264.



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 income to increase 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. 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.



36







Critical Accounting Policies



This “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” is based upon our financial statements and
accompanying notes, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates
and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors
that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions.



The accounting estimates
and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial
statements because they inherently involve significant judgments and uncertainties. For a more complete discussion of our accounting
policies and procedures, see our audited financial statements beginning on page F-1 of this report.



Revenue Recognition



Our revenue consists primarily
of royalty payments, franchise fees and area development fees that we receive from our franchisees.  We
generate revenue by entering into franchise agreements with parties to build and operate restaurants using the Dick’s Wings
brand within a defined geographical area. The agreements have a 10-year term and can be renewed for one additional 10-year term.
We provide the use of our Dick’s Wings trademarks and Dick’s Wings system, which includes uniform operating procedures,
standards for consistency and quality of products, technical knowledge, an procedures for accounting, inventory control and management,
in return for the royalty payments, franchise fees and area development fees.



Franchisees
are required to operate their restaurants in compliance with their franchise agreements, which includes adherence to operating
and quality control procedures established by us. We are not required to provide loans, leases, or guarantees to franchisees or
the franchisees’ employees and vendors. If a franchisee becomes financially distressed, we are not required to provide financial
assistance. If financial distress leads to insolvency of the franchisee or the filing of a petition by or against the franchisee
under bankruptcy laws, we have the right, but not the obligation, to acquire the franchise at fair value as determined by an independent
appraiser selected by us. Franchisees generally remit royalty payments weekly for the prior week’s sales. Franchise and area
development fees are paid upon the signing of the related agreements.



37







We recognize the royalties,
franchise fees and area development fees that we receive as revenue when persuasive evidence of an arrangement exists, delivery
or performance has occurred, the sales price is fixed and determinable, and collectability is reasonably assured in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605,
Revenue Recognition. Royalties are accrued as earned and are calculated each period based on
restaurant sales. Franchise fee revenue from individual franchise sales is recognized upon the opening of the franchised restaurant
when all material obligations and initial services to be provided by us have been performed. Area development fees are dependent
upon the number of restaurants in the territory, as are our obligations under the area development agreement. Consequently, as
obligations are met, area development fees are recognized proportionally with expenses incurred with the opening of each new restaurant
and any royalty-free periods.



Investments



On January 20, 2014, we
purchased a 50% ownership interest in Paradise on Wings, which is the franchisor of the Wing Nutz brand of restaurants. 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.



We
accounted for our investment in Paradise on Wings under the equity method of accounting in accordance with Financial Accounting
Standards Board Accounting Standards Codification (“ASC”) Topic 323, Investments
– Equity Method and Joint Ventures (“ASC 323”). ASC 323 provides that investments be accounted for under
the equity method of accounting when the investor has the ability to exert significant influence, but not control, over the operating
and financial policies of the investee. The determination of the level of influence that an investor has over each equity method
investment involves consideration of such factors as the investor’s ownership interest, representation on the board of directors,
participation in policy-making decisions and material intercompany transactions. Investments accounted for under the equity method
are recorded at the fair value amount of the investor’s initial investment on the balance sheet and adjusted each period
for the investor’s share of the investee’s income or loss. The investor’s share of the income or losses from
equity investments is reported as a component of other income / (expense) in the statements of operations.   Contributions
paid to, and distributions received from, equity investees are recorded as additions or reductions, respectively, to the respective
investment balance.



We
review our investment in Paradise on Wings for impairment whenever events or changes in circumstances indicate that the carrying
amount of assets may not be recoverable in accordance with ASC 323. The standard for determining
whether an impairment must be recorded under ASC 323 is whether an “other-than-temporary” decline in value of the investment
has occurred. The evaluation and measurement of impairments under ASC 323 involves quantitative and qualitative factors
and circumstances surrounding the investment, such as recurring operating losses, credit defaults and subsequent rounds of financing.
If an unrealized loss on the investment is considered to be other-than-temporary, the loss is recognized in the period the determination
is made and the value of the investment is reduced by the amount of the loss.



Stock-Based Compensation



We account for employee
stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock
Compensation (“ASC 718”), using the modified prospective transition method. Under this method, compensation expense
includes: (a) compensation expense for all stock-based payments granted, but not yet vested, as of January 1, 2006 based on the
grant-date fair value, and (b) compensation expense for all stock-based payments granted subsequent to January 1, 2006, based on
the grant-date fair value. Such amounts have been reduced to reflect our estimate of forfeitures of all unvested awards.



38







We account for non-employee
stock-based compensation in accordance with ASC 718 and ASC Topic 505, Equity (“ASC 505”). ASC 718 and ASC 505
require that we recognize compensation expense based on the estimated fair value of stock-based compensation granted to non-employees
over the vesting period, which is generally the period during which services are rendered by the non-employees.



We use the Black-Scholes
pricing model to determine the fair value of the stock-based compensation that we grant to employees and non-employees. The Black-Scholes
pricing model takes into consideration such factors as the estimated term of the securities, the conversion or exercise price of
the securities, the volatility of the price of our common stock, interest rates, and the probability that the securities will be
converted or exercised to determine the fair value of the securities. The selection of these criteria requires management's judgment
and may impact our net income or loss. The computation of volatility is intended to produce a volatility value that is representative
of our expectations about the future volatility of the price of our common stock over an expected term. We used our share price
history to determine volatility and cannot predict what the price of our shares of common stock will be in the future. As a result,
the volatility value that we calculated may differ from the actual volatility of the price of our shares of common stock in the
future.



Recent Accounting Pronouncements



In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue with
Contracts from Customers (“ASU 2014-09”). ASU 2014-09 supersedes the current revenue recognition guidance, including
industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue
to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning
after December 15, 2016 and early adoption is not permitted. We are currently evaluating the impact of the updated guidance but
we do not believe the adoption of ASU 2014-09 will have a significant impact on our financial statements.



In August 2014, the FASB
issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This update requires management
to assess an entity’s ability to continue as a going concern by incorporating and expanding on certain principles that are
currently in U.S. auditing standards. Specifically, ASU 2014-15: (i) provides a definition of the term substantial doubt, (ii)
requires an evaluation every reporting period including interim periods, (iii) provides principles for considering the mitigating
effects of management’s plans, (iv) requires certain disclosures when substantial doubt is alleviated as a result of consideration
of management’s plans, (v) requires an express statement and other disclosures when substantial doubt is not alleviated,
and (vi) requires an assessment for a period of one year after the date that the financial statements are issued or available to
be issued. This update is effective for the fiscal years ending after December 15, 2016 and for annual periods and interim periods
thereafter. Early application is permitted. ASU 2014-15 did not have a material impact on our financial statements.



39







In February 2015, the FASB
issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis(“ASU 2015-02”). ASU 2015-02 modifies
the analysis that must be performed to determine whether a reporting entity should consolidate certain types of legal entities.
The updated guidance is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted.
We do not believe the adoption of ASU 2014-09 will have a material impact on our financial statements.



Comparison of the Years Ended December 31,
2015 and December 28, 2014



Revenue



Revenue consists primarily
of royalty payments and franchise fees that we receive from our franchisees. Revenue increased $378,075 to $966,931 for the year
ended December 31, 2015 from $588,856 for the year ended December 28, 2014. The increase of $378,075 was due primarily to an increase
of $284,301 for royalties and $75,000 for franchise fees. Our royalties were positively impacted by increased sales by our franchisees
at our existing restaurants, sales by franchisees at new restaurants that opened during the past 12 months, and operational improvements
that we implemented at each of our franchisees’ restaurants. Our franchise fees increased as a result of the opening of new
Dicks Wings restaurants. 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 decreased $24,466 to $160,178 for the year ended December 31, 2015 from
$184,644 for the year ended December 28, 2014. The decrease of $24,466 was due to a decrease of $18,257 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 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 $166,609 to $585,128 for the year ended December 31, 2015 from $418,519 for the year ended December 28, 2014.
The increase of $166,609 was due primarily to increases of $76,114 for salaries and $76,750 for bonuses. 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.



40







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, shareholder
meeting 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 $10,469 to $175,179
for the year ended December 31, 2015 from $185,648 for the year ended December 28, 2014. The decrease of $10,469 was due primarily
to a decrease of $33,440 for SEC filing fees and shareholder meeting expenses, partially offset by an increase of $12,041 for travel
expenses and increases in other miscellaneous general and administrative 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 $7,956 to
$16,452 for the year ended December 31, 2015 from $24,408 for the year ended December 28, 2014. The decrease of $7,956 was due
primarily 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.



Income (Loss) From Investment in
Paradise on Wings



Income loss
from investment in Paradise on Wings consists of our share of the income and loss from our 50% ownership interest in Paradise
on Wings that we purchased on January 20, 2014. Income from investment in Paradise on Wings decreased $266,262 to $247,717
for the year ended December 31, 2015 from $18,545 for the year ended December 28, 2014. The decrease of $266,262 was
primarily due to mark to market losses on investments and allowance reserves on notes receivable, partially offset by an
increase in 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.





Loss on Settlement of Litigation



Loss on settlement
of litigation consists of the losses that we incur for judgments in legal proceedings and settlements of legal proceedings. We
incurred loss on settlement of litigation of $221,323 during the year ended December 31, 2015. We did not incur any loss on settlement
of legal proceedings during the year ended December 28, 2014. The loss that we recognized during the year ended December 31, 2015
related to the settlement of a legal proceeding entitled J. David Eberle vs. American Restaurant Concepts, Inc.and a reserve
that we accrued in connection with a complaint filed by Santander Bank in January 2015.A summary of these legal proceedings is set forth under Note 13. Judgments in Legal Proceedings in the footnotes
to our financial statements beginning on page F-1 of this report. We do not expect to recognize any additional losses on the settlement
of legal proceedings during the next 12 months.





Net Loss



We generated a
net loss of $432,730 during the year ended December 31, 2015 compared to a net loss of $193,833 during the year ended
December 28, 2014. The increase of $238,897 was due primarily to a loss of $247,717 from our investment in Paradise on Wings,
$221,323 for loss on settlement of litigation and an increase of $166,619 for employee compensation expense. This was
partially offset by an increase of $378,075 for revenue and a decrease of $24,466 for professional fees.  We expect earnings
to improve 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.



41







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.



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 used
by operating activities was $57,353 during the year ended December 31, 2015 compared to $221,617 during the year ended
December 28, 2014. The decrease of $164,264 for net cash used by operating activities was due primarily to a decrease of
$432,730 for net loss and increases of $103,581 for accounts payable and accrued liabilities and $221,323 for losses on
litigation. This was partially offset by decreases of $247,717 for a decrease in our equity investment in Paradise on Wings,
and decreases of $62,948 for advertising fund liabilities and $99,876 for settlement agreements payable.



Net cash used by
investing activities was $98,452 during the year ended December 31, 2015 compared to $401,755 during the year ended December
28, 2014. The decrease of $303,303 for net cash used by investing activities was due to a decrease of $400,000 for our
equity investment in Paradise on Wings and an increase of $199,466 for repayments of notes receivable. This was offset by an
increase of $297,918 for the issuance of notes receivable to related parties.



Net cash provided by financing
activities was $162,580 during the year ended December 31, 2015 compared to $618,310 during the year ended December 28, 2014. The
decrease of $455,730 for net cash provided by financing activities was due to an increase of $787,567 for repayments of notes payable, partially offset by an increase of $331,837 for
proceeds from the issuance of notes payable to a related party.



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.



42







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 was unsecured, accrued interest at a rate of 6% per annum, and had a maturity date
of March 31, 2015. The principal and interest were payable in four equal quarterly installments of $85,000 beginning June 30, 2014.
The final quarterly installment of $85,000 was paid by Mr. Kasturi during April 2015.



Between January 22, 2014
and December 28, 2014, we borrowed an additional $1,445,216 under our credit facility from Blue Victory Holdings, and between June
30, 2014 and December 28, 2014, we repaid $1,441,796 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 December 31, 2015, we borrowed an additional $1,987,953 under our credit facility from Blue Victory Holdings. During
the year ended December 31, 2015, we repaid $1,991,373 under the credit facility. Accordingly, as of December 31, 2015, we
did not have any principal outstanding under the credit facility.



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, includingadditional 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 mayhave rights, preferences and privileges senior to those
of the shares of common stock held by our stockholders.



43







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 December 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 7A. Quantitative and Qualitative Disclosures
About Market Risk.



| |  | Not applicable.
| |  | ---------------



| | Item 8. | Financial Statements and Supplementary Data.
| | ------- | --------------------------------------------



Our audited financial statements
at and for each of the years ended December 31, 2015 and December 28, 2014, respectively, begin on page F-1 of this report located
immediately after the signature page hereto.



Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.



None.



Item 9A. Controls and Procedures.



Evaluation of Disclosure Controls and Procedures



We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms
and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed
to provide reasonable assurance that the controls and procedures would meet management’s objectives.



44







As of December 31,
2015, we carried out the evaluation of the effectiveness of our disclosure controls and procedures as defined 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 December 31, 2015, our disclosure controls and procedures were not 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.



Management’s
Report on Internal Control Over Financial Reporting



Our
management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP.  Internal control over financial reporting includes policies and procedures
that:



1.           pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our
assets;



2.           provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and



3.           provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that
could have a material effect on our financial statements.



Internal
control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject
to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented
by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not
be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design safeguards to reduce, though not eliminate,
this risk.



45







Our
management used the framework set forth in the 1992 version of the report entitled, “Internal Control –
Integrated Framework”published by the Committee of Sponsoring Organizations of the Treadway Commission, known as
COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our
management concluded that our internal control over financial reporting was not effective atDecember 31, 2015 due
to the existence of a material weakness in our internal controls.



A
material weakness is a control deficiency, or a combination of control deficiencies, that results in a more than remote likelihood
that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Our management, in consultation with our independent registered public accounting firm, concluded
that the following  material weaknesses existed in the following areas as of December 31, 2015:



1. Our
board of directors is comprised of Fred D. Alexander and Ketan B. Pandya. Mr. Alexander serves as an officer for Blue Victory
Holdings, a company that loaned us $1,987,953 and $1,656,116 during the years ended December 31, 2015 and December 28, 2014,
respectively.As a result, we do not have a board of directors comprised of a majority of
independent directors monitoring the actions of our senior management. One of the responsibilities of a company’s board
of directors is to act as an independent source for monitoring the actions of a company’s senior management. The lack
of a majority of independent directors on our board of directors constitutes a material weakness in our internal
controls.



2. We had inadequate written policies and procedures for accounting
and financial reporting with respect to both GAAP and the guidelines of the SEC.



3. Our closing process was inadequate to ensure that all material
misstatements are corrected in the financial statements.



To
remediate these material weaknesses, we intend to implement more comprehensive written policies and procedures and a
more comprehensive closing process. In addition, we are currently seeking independent directors to join our board of
directors.  The addition of such board members will provide us with independent directors who can monitor the actions of
our top management.  Our efforts to do so have been hindered substantially by the fact that we do not have a directors
and officers insurance policy in place.  Because such policies are very expensive, we believe it is in our best interest
to forego the purchase of such a policy and instead focus the use of our limited financial resources on our development
and growth. Notwithstanding the foregoing, we will continue seeking independent directors to join our board of directors.



Notwithstanding the existence
of these material weaknesses in our internal controls, we believe that our financial statements fairly present, in all material respects,
our balance sheets at December 31, 2015 and December 28, 2014 and our statements of operations, stockholders’ equity / (deficit)
and cash flows for the years ended December 31, 2015 and December 28, 2014 in conformity with GAAP.



This
annual report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting
firm pursuant to rules of the SEC that permit us to provide only our management’s report in this annual report.



Changes in Internal
Control Over Financial Reporting



There
has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.



Item 9B. Other
Information.



Not
applicable.



46







PART III



Item 10. Directors, Executive
Officers and Corporate Governance.



Directors and Executive Officers



The following chart sets
forth certain information about each of our directors and executive officers.



|Name              |    | Age |                                                                 |  | Positions Held | 
|----------------- | -- | --- | --------------------------------------------------------------- |  | -------------- | 
|Richard W. Akam   | 60 |     | Chief Executive Officer, Chief Operating Officer, and Secretary
|Daniel Slone      | 46 |     | Chief Financial Officer                                        
|Fred D. Alexander | 69 |     | Chairman of the Board                                          
|Ketan B. Pandya   | 47 |     | Director                                                       
|                  |    |     |                                                                 | 

Board of Directors



We believe that our board
of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business.
We believe that experience, qualifications or skills in the following areas are most important: (i) organizational leadership and
vision; (ii) strategic, financial and operational planning; (iii) restaurant and franchising industry experience; (iv) corporate
restructuring and performance enhancement; (v) corporate finance; and (vi) experience as a board member of other corporations.
These areas are in addition to the personal qualifications described in this section. We believe that our current board members
possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy
attributes for these board members below. The principal occupation and business experience, for at least the past five years, of
our current directors are as follows:



Fred
D. Alexander has served as the Chairman of our board of directors since November 2012. He has served as the Vice President
of Business Development for Blue Victory Holdings, Inc., a private equity firm that is focused primarily on the development
and management of branded assets, where he is responsible for the identification, acquisition and financing of branded restaurants,
since July 2010.  He has also served as the Managing Member and Director of Business Development for Quantum Leap, LLC,
a real estate company that he founded that acquires, develops, and manages underperforming properties and other assets, since July
2007.  Mr. Alexander serves as the General Partner of Southern Real Estate, LLP, a real estate company that he founded
in August 2002 that acquires, rehabilitates and markets low-income apartment properties, and as the Managing Member and Director
of Operations for American Phoenix, LLC, a real estate company that he founded in December 2003 that acquires, developments and
markets high-end real estate assets, including apartment buildings, condominiums and shopping centers.  Mr. Alexander
obtained his college degree at the University of Louisiana, at Lafayette, and has been a licensed real estate broker since 1972.



47







We believe Mr. Alexander
is qualified to serve as a director due to his extensive experience with identifying, evaluating, acquiring and financing branded
restaurants and other assets, and his more than 40 years of experience in management, operations and finance.



Ketan B. Pandya
has served as a member of our board of directors since August 2013. Hehas
served as the Senior Director of National Account Sales for SMART Technologies, a developer of Web-based integrated customer relationship
solutions, since March 2012. He has also served as a Senior Consultant to ProTechnology, a consumer electronics company, since
January 2010, and as a member of the advisory board of Axelo, a developer of advanced sensing technologies, since January 2008.
Prior to that, Mr. Pandya served as the Director of Marketing/Sales for Advanced Micro Devices, a multinational semiconductor company,
from March 2010 to December 2011, and served as the Senior Manager for Product Marketing and Retail Sales Support for Dell, a multinational
computer technology company, from September 1999 to February 2010. Mr. Pandya earned a B.S. in Electrical Engineering from the
Louisiana State University and a MBA with a concentration in marketing from the University of Texas at Austin.



We believe Mr. Pandya is
qualified to serve as a director due to his strong leadership, business acumen and analytical skills, and the more than 20 years
of experience he acquired in senior sales and marketing positions at a number of multinational corporations.



Executive Officers



Richard Akam has
served as our Chief Executive Officer and Secretary since July 2013 and as our Chief Operating Officer since January 2013. Mr.
Akam also served as our Chief Financial Officer from July 2013 to August 2013. Prior
to joining us, Mr. Akam served as the Chief Operating Officer of Ker’s Winghouse from September 2012 to January 2013.  From
May 2011 to July 2012, he served as the Chief Operating Officer of Twin Peaks Restaurants.  Mr. Akam served as the Chief
Operating Officer of First Watch Restaurants from February 2005 to December 2008 and as the Chief Operating Officer of Raving Brands
from October 2003 to February 2005.  Prior to that, he served in various roles with Hooters of America for approximately
20 years, including serving as its President and Chief Executive Officer from 1995 to 2003.  Mr. Akam is also the founding
member of Akam & Associates, LLC, a restaurant consulting firm that has provided consulting services to the restaurant industry
since 2009.  Mr. Akam earned a Bachelor of Arts degreefrom the University of Louisville.



Daniel
Slone has served as our Chief Financial Officer since August 2013. He also serves as the Controller of Blue Victory Holdings,
a private equity firm focused primarily on the development and management of national restaurant franchises and other assets, a
position he has held since July 2012. Prior to joining Blue Victory Holdings,
Mr. Slone served as the Director of Operations of LCS Corrections Services, a privatized corrections company, from September 2007
to April 2012. Prior to that, he served as the Vice President and Director of Franchise Operations for the franchisor of Pop-A-Lock,
a national professional locksmithing franchise, from April 2000 to April 2003, and subsequently served as the Chief Financial Officer
for the company’s largest franchisee from April 2003 to August 2007. Mr. Slone earned a B.A. in political science and international
relations from the University of Mississippi, and an MBA with a concentration in management from the University of Phoenix.



48







Stockholder Communications



We have not implemented
any formal procedures for stockholder communication with our board of directors. Any matter intended for our board of directors,
or for any individual member or members of our board of directors, should be directed to our corporate secretary at ARC Group,
Inc., 6327-4 Argyle Forest Boulevard, Jacksonville, FL32244. In general,
all stockholder communication delivered to the corporate secretary for forwarding to the Board of Directors or specified members
of the Board of Directors will be forwarded in accordance with the stockholder’s instructions. However, the corporate secretary
reserves the right to not forward to members of the Board of Directors any abusive, threatening or otherwise inappropriate materials.



Audit Committee and Audit Committee Financial
Expert



Our board of directors
has not created a separately-designated standing audit committee or a committee performing similar functions. Accordingly, our
full Board of Directors acts as our audit committee. In addition, we do not have an “audit committee financial expert,”
as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act, serving on our board of directors.
We currently have a small number of employees and have generated only a small amount of revenue to date. In light of the foregoing,
our board of directors concluded that the benefits of retaining an individual who qualifies as an “audit committee financial
expert” would be outweighed by the costs of retaining such a person. As a result, no member of our board of directors is
an “audit committee financial expert.” Additionally, our board of directors, acting as our audit committee, has the
ability to retain independent accountants or consultants whenever it deems appropriate.



Code of Business Conduct
and Ethics



We
have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer,
principal accounting officer or controller, and persons performing similar functions. Our Code of Business Conduct and Ethics is
designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure
in reports and documents that we file with, or submit to, the SEC and in other public communications that we make; (iii) compliance
with applicable governmental laws, rules and regulations; (iv) prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code; and (v) accountability for adherence to the code.A
copy of our Code of Business Conduct and Ethicsis available without charge upon written
request directed toour corporate secretary at ARC Group, Inc.,6327-4 Argyle Forest Boulevard, Jacksonville, FL32244.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Exchange
Act requires that our officers and directors and persons who beneficially own more than 10% of our common stock file initial reports
of ownership and reports of changes in beneficial ownership of our common stock with the SEC. They are also required to furnish
us with copies of all Section 16(a) forms that they file with the SEC. Based solely on our review of the copies of such forms received
by us, or written representations from such persons that no reports were required for those persons, we believe that all Section
16(a) filing requirements were satisfied in a timely fashion during our fiscal year ended December 31, 2015.



49







Item 11. Executive Compensation.



Summary Compensation Table



The following table provides
certain summary information concerning compensation earned by the executive officers named below during the fiscal years ended
December 31, 2015 and December 28, 2014.



|Name and Principal
                                         Position |  | Year |      |  | Salary ($) |  |         | Bonus ($) |  |  | Stock Awards
                                         ($) (1) |  |  | All
                                         Other Compensation
                                         (4) |        |     | Total ($) | 
|-------------------------------------------------------------------- |  | ---- | ---- |  | ---------- |  | ------- | --------- |  |  | ------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------ | ------ | --- | --------- | 
|                                                                     |  |      |      |  |            |  |         |           |  |  |                                                               |  |  |                                                                                                              |        |     |           | 
|Richard W. Akam                                                      |  |      | 2015 |  |            |  | 168,366 |           |  |  | 48,600                                                        |  |  |                                                                                                              | 50,411 | (2) |           | 
|Chief Executive Officer, Chief Operating Officer and Secretary       |  |      | 2014 |  |            |  | 163,800 |           |  |  | 32,400                                                        |  |  |                                                                                                              | 50,373 | (3) |           | 
|                                                                     |  |      |      |  |            |  |         |           |  |  |                                                               |  |  |                                                                                                              |        |     |           | 
|Daniel Slone                                                         |  |      | 2015 |  |            |  | 1       |           |  |  | -0-                                                           |  |  |                                                                                                              | -0-    |     |           | 
|Chief Financial Officer                                              |  |      | 2014 |  |            |  | 1       |           |  |  | -0-                                                           |  |  |                                                                                                              | -0-    |     |           | 



(1)
Represents the grant date fair value of the awards, calculated in accordance with ASC 718. A summary
of the assumptions made in the valuation of these awards is provided herein under Item 6. Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Item 11. Executive Compensation
– Employment Agreements and Arrangements, and in our notes to financial statements beginning on page F-1 of this report.



(2)
Consists of $548 recognized in connection with the partial vesting of a stock award that was made
on January 1, 2014 and that vested in full on January 1, 2015, and $49,863 recognized in connection with the partial vesting of
a stock award that was made on January 1, 2015. The stock award that was made on January 1, 2015 vested in full on January 1, 2016.



(3)
Consists of $920 recognized in connection with the partial vesting of a stock award that was made
on July 22, 2013 and that vested in full on January 1, 2014, and $49,453 recognized in connection with the partial vesting of a
stock award that was made on January 1, 2014 and that vested in full on January 1, 2015.



(4)
Consists of a car allowance of $12,000.



Employment Agreements and Arrangements



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



The
employment agreement provides for the issuance of shares of our common stock to Mr. Akam in the event that he satisfies certain
conditions. On July 22, 2013, Mr. Akam earned shares of our common stock equal in value to $50,000 for satisfying the condition
that he be continuously employed by us through that date. The number of shares of common stock was calculated based on the last
sales price of our common stock as reported on the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”) on July
22, 2013.



50







The
employment agreement also provides that Mr. Akam will earn additional shares of our common stock equal in value to $50,000 on January
1st of each year if he is continuously employed by us on that date. The number of shares of common stock that we will issue to
Mr. Akam for each applicable year is calculated based on the average of the last sales price of shares of our common stock as reported
on the OTC Bulletin Board for the month of January of the applicable year.



Mr.
Akam agreed that the number of shares that may be earned by him under his employment agreement in connection with any particular
grant shall 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 our common stock on the day immediately preceding the date he earns the shares. Mr.
Akam also agreed that in the event we are unable to fulfill our obligation to issue all of the shares earned by him due to us not
having enough shares of common stock authorized and available for issuance, (i) Mr. Akam will not require us to issue more shares
of common stock than are then authorized and available for issuance by us, and (i) we may settle any liability to Mr. Akam created
as a result thereof in cash.



Accordingly, on July 22,
2013, February 1, 2014, February 1, 2015 and February 1, 2016, we issued 71,429, 28,433, 71,429 and
71,429shares of our common stock, respectively, to Mr. Akam pursuant to the terms
of the employment agreement.



In
the event we terminate Mr. Akam’s employment without “cause,” Mr. Akam will be entitled to receive the following
severance compensation from us: (i) if we terminate Mr. Akam’s employment during the first year of his employment with us,
that amount of compensation equal to the salary payable to Mr. Akam during that year, (ii) if we terminate Mr. Akam’s employment
during the second year of his employment with us, that amount of compensation equal to nine months of the salary payable to Mr.
Akam during that year, (iii) if we terminate Mr. Akam’s employment during the third year of his employment with us, that
amount of compensation equal to six months of the salary payable to Mr. Akam during that year, and (iv) if we terminate Mr. Akam’s
employment after the third year of his employment with us, 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
us if we terminate his employment for “cause” or as a result of his disability, or if Mr. Akam resigns from his employment
with us.



Under
the terms of Mr. Akam’s employment agreement, “cause” includes, but is not limited to: (i)embezzlement,
theft, larceny, material fraud or other acts of dishonesty, (ii) intentional disregard of duties under the employment agreement,
or any other material violation of the employment agreement, (iii) conviction of or entrance of a plea of guilty or no contest
to a felony or other crime which has or may have a material adverse effect on his ability to carry out his duties under the employment
agreement or upon our reputation, (iv) conduct involving moral turpitude, (v) gross insubordination or repeated insubordination
after written warning by us, (vi) unauthorized disclosure of our confidential information, (vii) material and continuing failure
to perform his duties in a quality and professional manner for a period of at least 30 days after written warning by us, (viii)
the issuance of an injunction or any other court order or judgment by a court of competent jurisdiction or arbitrator upholding
the provisions of the confidentiality agreement signed by us and Mr. Akam on September 10, 2012, and (ix) the addition of us as
a party in any proceeding in connection with the confidentiality agreement.



51







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



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



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



Director Compensation



We
do not provide any compensation to our employee directors and have not adopted a standard compensation package for non-employee
directors serving as members of our board of directors. We
appointed Fred Alexander and Ketan B. Pandya as non-employee directors to our board of directors in November 2012 and August 2013,
respectively. We intend to add additional non-employee directors to our board of directors in the future.We intend to provide
our non-employee directors with remuneration that may consist of one or more of the following: (i) an annual retainer, (ii) a fee
paid for each board meeting attended, (iii) an annual grant of equity compensation, and (iv) reimbursement for reasonable
travel expenses incurred to attend meetings of our board of directors. We may provide additional remuneration to board members
participating on committees of our board of directors.



Outstanding Equity Awards at Fiscal Year
End



The following table sets
forth, for each named executive officer, information regarding stock that had not vested as of the end of our fiscal year ended
December 31, 2015. We did not have any stock options or equity incentive plan awards outstanding as of the end of our fiscal year
ended December 31, 2015.



52







|                |        | Stock Awards
|--------------- | ------ | ------------
|Name            |        | Grant Date  
|                |        |             
|Richard W. Akam | 1/1/15 |             
|Daniel Slone    |        |             
|                |        |             

(1)
This stock award vested in full on January 1, 2016.



* The number
of shares of our common stock is calculated based on the average of the last sales price of shares of our common stock as reported
on the OTC Bulletin Board for the month of January 2016. In connection therewith, on February 1, 2016, we issued 71,429 shares
of our common stock to Mr. Akam.



Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters.



The following table
and the notes thereto set forth, as of April 11, 2016, certain information with respect to the beneficial ownership of: (i)
each of our named executive officers, (ii) each of our directors, (iii) each of our named executive officers and directors as
a group, and (iv) each person or group that is known to us to be the beneficial owner of more than five percent of our common
stock. This table is based upon information supplied by our officers, directors and principal stockholders and Schedules 13D
and 13G filed with the SEC. Where information regarding stockholders is based on Schedules 13D and 13G, the number of shares
owned is as of the date for which information was provided in such schedules. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, we believe that each of the persons named in this table
has sole voting and investment power with respect to the shares indicated as beneficially owned.



The beneficial owners and
amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance
therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of April 11, 2016
upon the exercise or conversion of any options, warrants or other convertible securities. Unless otherwise indicated, each person
or entity named below has sole voting and investment power with respect to all shares of common stock beneficially owned by that
person or entity, subject to the matters set forth in the footnotes to the table below, and has an address of 6327-4
Argyle Forest Boulevard, Jacksonville, FL32244.



53







|Name and Address of Beneficial Owner              |  | Amount and Nature of Beneficial Ownership
    (1) |             |  | Percentage of Class (1) |    
|------------------------------------------------- |  | ------------------------------------------------- | ----------- |  | ----------------------- | ---
|                                                  |  |                                                   |             |  |                         |    
|Richard W. Akam                                   |  |                                                   | 242,720     |  |                         |    
|                                                  |  |                                                   |             |  |                         |    
|Daniel Slone                                      |  |                                                   | 758         |  |                         |    
|                                                  |  |                                                   |             |  |                         |    
|Fred D. Alexander                                 |  |                                                   | -0-         |  |                         |    
|                                                  |  |                                                   |             |  |                         |    
|Ketan B. Pandya                                   |  |                                                   | 45,700      |  |                         |    
|                                                  |  |                                                   |             |  |                         |    
|William D. Leopold II                             |  |                                                   | 2,256,072   |  |                         |    
|                                                  |  |                                                   |             |  |                         |    
|Seenu G. Kasturi                                  |  |                                                   | 572,688 (2) |  |                         |    
|                                                  |  |                                                   |             |  |                         |    
|All officers and directors as a group (4 persons) |  | 289,178                                           |             |  |                         | 3.4










* Less than one percent.



(1) This table has been prepared
based on 6,592,464 shares of our common stock outstanding on April 11, 2016.



(2) Includes
911 shares of common stock held by Blue Victory Holdings, a company for which Mr. Kasturi serves as the President, Treasurer, Secretary
and sole director and of which he owns 90% of the outstanding equity interests.



Equity Compensation Plan Information



The following table sets
forth information regarding the number of options, warrants, rights and similar securities that were outstanding at December 31,
2015 under equity compensation plans that have not been approved by our stockholders. None of our securities were outstanding at
December 31, 2015 under plans that have been approved by our stockholders.



|Plan Category                                               |  |  |     | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |     |  | Weighted- average exercise price of outstanding options, warrants and rights (b) |  |     | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |          
|----------------------------------------------------------- |  |  | --- | ----------------------------------------------------------------------------------------------- | --- |  | -------------------------------------------------------------------------------- |  | --- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                            |  |  |     |                                                                                                 |     |  |                                                                                  |  |     |                                                                                                                                                 |          
|Equity compensation plans approved by security holders:     |  |  | -0- |                                                                                                 |     |  | N/A                                                                              |  |     |                                                                                                                                                 | -0-      
|                                                            |  |  |     |                                                                                                 |     |  |                                                                                  |  |     |                                                                                                                                                 |          
|Equity compensation plans not approved by security holders: |  |  | -0- |                                                                                                 |     |  | N/A                                                                              |  |     |                                                                                                                                                 | 1,214,287
|                                                            |  |  |     |                                                                                                 |     |  |                                                                                  |  |     |                                                                                                                                                 |          
|Total                                                       |  |  |     |                                                                                                 | -0- |  |                                                                                  |  | N/A |                                                                                                                                                 |          



Our equity compensation
plans consisted of the American Restaurant Concepts, Inc. 2011 Stock Incentive Plan and our employment agreement with Richard W.
Akam. Neither of these plans was approved by our stockholders. We have not adopted any equity compensation plans that have been
approved by our stockholders.



54







A description of each of
our equity compensation plans is set forth below.



American Restaurant Concepts, Inc. 2011 Stock Incentive Plan



In August 2011, we adopted
the American Restaurant Concepts, Inc. 2011 Stock Incentive Plan. Under the plan, 1,214,286 shares of common stock may be granted
to our employees, officers, directors, consultants and advisors 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 31, 2015, 142,858 shares of our common stock remained available for issuance under the plan.  The plan terminates
in August 2021.  On August 18, 2011, we 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 2014 Stock Incentive Plan



In June 2014, we adopted
the ARC Group, Inc. 2014 Stock Incentive Plan. Under the plan, 1,000,000 shares of common stock may be granted to our employees,
officers, directors, consultants and advisors 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
31, 2015, all 1,000,000 shares of the Company’s common stock remained available for issuance under the plan.  The plan
terminates in June 2024.



Employment Agreements



On January 22, 2013, we
appointed Richard Akam to serve as our Chief Operating Officer and, in connection therewith, we entered into an employment agreement
with him. The employment agreement provides in part that we will grant Mr. Akam additional shares of our common stock equal in
value to $50,000 on January 1st of each year. The maximum number of shares of common stock that Mr. Akam can receive under each
of these grants is 71,429 shares. Accordingly, as of December 31, 2015, a maximum of 71,429 shares of common stock were available
for issuance under his employment Agreement. A summary of the terms of Mr. Akam’s employment agreement is set forth above
under Item 11. Executive Compensation – Employment Agreements and Arrangements.



Item 13. Certain Relationships and Related Transactions, and
Director Independence.



Certain Relationships and Related Transactions



In July 2013, we entered
into a consulting agreement with Michael Rosenberger pursuant to which Mr. Rosenberger assisted us with our prior business and
future business during a term commencing July 31, 2013 and ending December 31, 2013. In return, we paid Mr. Rosenberger $70,000
on July 31, 2013 and made payments of $32,500 to Mr. Rosenberger on September 1, 2013, October 15, 2013, December 1, 2013 and December
31, 2013. The consulting agreement became effective on July 31, 2013 and terminated in accordance with its terms on December 31,
2013. Mr. Rosenberger served as our Chief Executive Officer, Chief Financial Officer and Secretary, and as a member of our board
of directors, at the time the parties entered into the license agreement and throughout the duration of the license agreement.



55







In July 2013, we entered
into a three-year 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 for a concession stand to be located
at EverBank Field in Jacksonville, Florida. We subsequently assigned all of our 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. In July 2015, we extended our sponsorship agreement with the Jaguars by an additional two years and entered into
a subcontractor concession agreement with Ovations Food Services, L.P. for a second concession stand at EverBank Field. We subsequently
assigned all of our rights and obligations under the second concession agreement to DWG Acquisitions. The Company maintained the
fee paid to DWG Acquisitions at $2,000 per month. Seenu G. Kasturi owns approximately 8.8% of our common stock and all of the equity
interests in DWG Acquisitions. He also serves as the President, Treasurer and Secretary, and as the sole member, of DWG Acquisitions.We generated revenue of $24,000 from DWG Acquisitions under the assignment agreements during the years ended December 31,
2015 and December 28, 2014.



In
September 2013,we entered into a loan agreement with Blue Victory Holdings pursuant to which Blue Victory Holdings agreed
to extend a revolving line of credit facility to us 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 Holdings 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 our
common stock at a price per share equal to the closing price of our common stock on the OTCQB on the day immediately preceding
the date the transaction is completed. Seenu G. Kasturi owns approximately 9% of our common stock and 90% of the equity interests
in Blue Victory Holdings. He also serves as the President, Treasurer and Secretary, and sole member of the board of directors,
of Blue Victory Holdings. Fred Alexander serves as a member of our board of
directors and as an executive officer of Blue Victory Holdings, and
Daniel Slone serves as our Chief Financial Officer and as the controller of Blue Victory Holdings.



The
largest aggregate amount of principal outstanding under the credit facility during the years ended December 31, 2015 and December
28, 2014 was $55,867 and $567,662, respectively. We paid a total of $1,991,373 of outstanding principal and $10,312 of accrued interest
under the note during the year ended December 31, 2015. We paid a total of $1,778,335 of outstanding principal and $2,867 of accrued
interest under the note during the year ended December 28, 2014, of which$570,529 was paid on January 21, 2014 upon the
conversion by Blue Victory Holdings of all of the then outstanding principal and interest into a total of 326,017 shares of our
common stock, and the remaining $1,207,806 was paid in cash. We did not
have any loans outstanding under the credit facility at December 31, 2015. We had
total loans of $3,420 outstanding under the credit
facilityas of December 28, 2014. A description of the credit
facility is set forth herein under Note 8. Debt Obligations in the footnotes to our financial statements beginning
on page F-1 of this report.



56







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 us. The terms of
the franchise agreement were identical to those of the franchise agreements that we enter into with unrelated franchisees, except
that we did not require DWG Acquisitions to pay a franchise fee to us. Seenu G. Kasturi owns approximately 9% of our 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. We generated a total of $69,545 and $52,328 in royalties
from DWG Acquisitions under this agreement during the years ended December 31, 2015 and December 28, 2014, respectively.



In February 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. The price per share of common stock paid by Mr. Kasturi was equal to the closing price of our 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 us in the amount of $340,000. The promissory note was unsecured, accrued interest
at a rate of 6% per annum, and had a maturity date of March 31, 2015. The principal and interest were payable in four equal quarterly
installments of $85,000 beginning June 30, 2014. Mr. Kasturi made payments of $170,000 to us under the promissory note during the
year ended December 28, 2014. The promissory note was paid off in full by Mr. Kasturi during the year ended December 31, 2015.
Mr. Kasturi owns approximately 8.8% of our common stock and 90% of the equity interests in Blue Victory Holdings. He also serves
as the President, Treasurer and Secretary, and as the sole member of the board of directors, of Blue Victory Holdings. A
description of the transaction is set forth herein under Note 9. Capital Stock in the footnotes to our financial
statements beginning on page F-1 of this report.



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 us. The terms of
the franchise agreement were identical to those of the franchise agreements that we enter into with unrelated franchisees, except
that we did not require DWG Acquisitions to pay a franchise fee to us. Seenu G. Kasturi owns approximately 8.8% of our 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. We generated a total of $98,802 and $54,611 in royalties
from DWG Acquisitions under this agreementduring the years ended December 31, 2015 and December 28, 2014, respectively.



Between April and
June 2014, we loaned $17,952 to DWG Acquisitions. The loan accrued
interest at a rate of 6% per year and was payable on demand. The loan was paid off in full by Blue
Victory Holdings during theyear ended December 28, 2014. Seenu G. Kasturi owns approximately 8.8% of our 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 Receivablein the footnotes to our financial statements beginning on page F-1 of
this report.



57







In November and
December 2014, we loaned a total of $16,800 to Quantum Leap QSR, LLC (“Quantum Leap”). The loan accrued interest
at a rate of 6% per year and was payable on demand. The loan was paid off in full by Quantum Leap during the year ended
December 31, 2015. Ketan Pandya is one of our directors and owned 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 Receivablein the footnotes to our financial statements
beginning on page F-1 of this report.



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 us. The terms of the franchise
agreement were identical to those of the franchise agreements that we enter into with unrelated franchisees. Seenu G. Kasturi owns
approximately 8.8% of our 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. We generated a total of
$58,180 and $1,502 in royalties from DWG Acquisitions under this agreementduring the years ended December 31, 2015 and
December 28, 2014, respectively.



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 us. The terms of the franchise agreement were
identical to those of the franchise agreements that we enter into with unrelated franchisees. Seenu G. Kasturi owns approximately
8.8% of our 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. We generated a total of $44,901 in royalties
from DWG Acquisitions under this agreementduring the year ended December 31, 2015.



In June 2015, DWG Acquisitions
became the franchisee of the Dick’s Wings restaurant located in Fleming Island, Florida.
In connection therewith, DWG Acquisitions entered into a franchise agreement with us. The terms of the franchise agreement were
identical to those of the franchise agreements that we enter into with unrelated franchisees. Seenu G. Kasturi owns approximately
8.8% of our 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. We generated a total of $32,819 in royalties
from DWG Acquisitions under this agreementduring the year ended December 31, 2015.



In September 2015, DWG
Acquisitions became the franchisee of the Dick’s Wings restaurant located in Panama
City Beach, 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. Seenu G. Kasturi owns approximately 8.8% 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. We
generated a total of $16,372 in royalties from DWG Acquisitions under this agreementduring the year ended December 31,
2015.



During the year ended
December 31, 2015, we loaned a total of $121,638 to Racing QSR, LLC (“Racing QSR”). The loan accrued interest at
a rate of 6% per year and was payable on demand. Seenu G. Kasturi owns approximately 8.8% of our common stock and all of the
equity interests in Racing QSR. He also serves as the President, Treasurer and Secretary, and sole member, of Racing QSR. A
description of the loan is set forth herein under Note 7. Notes Receivablein the footnotes to our financial
statements beginning on page F-1 of this report.



58







Director Independence



Pursuant to Item 407(a)(1)(ii)
of Regulation S-K promulgated under the Securities Act, we have adopted the definition of “independent director” as
set forth in Rules 5000(a)(19) and 5605(a)(2) of the rules of the Nasdaq Stock Market. Our
board of directors is comprised of Fred D. Alexander and Ketan B. Pandya. Mr. Alexander serves as an officer for Blue Victory Holdings,
a company that loaned us $17,365 and $448,310 during the years ended December 31, 2015 and December 28, 2014, respectively. Mr.
Ketan owned 70% of the outstanding equity interests of Quantum Leap QSR, LLP, a Louisiana limited liability company that we loaned
$16,800 to during the year ended December 28, 2014. Accordingly,Messrs. Alexander and Pandya do not qualify as “independent
directors” under these rules, and Messrs. Alexander and Pandya are not “independent” for purposes of Rule 5605(c)(2)
of the rules of the Nasdaq Stock Market. Our board of directors has not created separately-designated standing committees. Officers
are elected annually by our board of directors and serve at the discretion of our board of directors.



Item 14. Principal Accountant Fees and Services.



The following table presents
fees for professional audit services performed by M&K CPAS, PLLC (“M&K CPAS”) for the audit of our financial
statements for our fiscal years ended December 31, 2015 and December 28, 2014,
and fees billed for other services rendered by M&K CPAS during such years.



|                    |  | 2015 |        |  | 2014 |  
|------------------- |  | ---- | ------ |  | ---- | -
|                    |  |      |        |  |      |  
|Audit Fees:         |  | $    | 27,250 |  |      | $
|Audit-Related Fees: |  |      | ---    |  |      |  
|Tax Fees:           |  | $    | 2,400  |  |      | $
|All Other Fees:     |  |      | ---    |  |      |  
|Total:              |  | $    | 29,650 |  |      | $



Audit Fees consist
of fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements,
the review of our interim financial statements included in our quarterly reports, and services that are normally provided by our
principal accountant in connection with statutory and regulatory filings or engagements.



Audit-Related
Fees consist of fees billed for assurance and related services rendered by our principal accountant that are reasonably related
to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”



Tax
Fees consists of fees billed for professional services rendered by our principal accountant for tax compliance, tax advice
and tax planning. These services included assistance regarding federal and state tax compliance and filings.



All
Other Fees consist of fees billed for products and services provided by our principal accountant, other than those services
described above.



59







Our board of directors
serves as our audit committee. It approves the engagement of our independent auditors, and meets with our independent auditors
to approve the annual scope of accounting services to be performed and the related fee estimates. It also meets with our independent
auditors prior to the completion of our annual audit and reviews the results of their audit and review of our annual and interim
consolidated financial statements, respectively. During the course of the year, our chairman has the authority to pre-approve requests
for services that were not approved during the annual pre-approval process. The chairman reports any interim pre-approvals at the
following quarterly meeting. At each of the meetings, management and our independent auditors update our board of directors regarding
material changes to any service engagement and related fee estimates as compared to amounts previously approved. During 2015 and
2014, all audit and non-audit services performed by our independent accountants were pre-approved by our board of directors in
accordance with the foregoing procedures.



60







PART IV



Item 15. Exhibits, Financial Statement Schedules.



Financial Statements



The following financial
statements and report of our independent registered public accounting firm are filed as part of this report and incorporated by
reference in Item 8. Financial Statements and Supplementary Data of this report:



| | · | Report of Independent Registered Public Accounting Firm.
| | - | --------------------------------------------------------



| | · | Balance Sheets at December 31, 2015 and December 28, 2014.
| | - | ----------------------------------------------------------



| | · | Statements of Operations for the Years Ended December 31, 2015 and December 28, 2014.
| | - | -------------------------------------------------------------------------------------



| | · | Statements of Stockholders’ Equity / (Deficit) for the Years Ended December 31, 2015 and December 28, 2014.
| | - | -----------------------------------------------------------------------------------------------------------



| | · | Statements of Cash Flows for the Years Ended December 31, 2015 and December 28, 2014.
| | - | -------------------------------------------------------------------------------------



| | · | Notes to Financial Statements.
| | - | ------------------------------



Financial Statement Schedules



All
financial statement schedules have been omitted because the required information is either not applicable or has been presented
in the financial statements.



Exhibits



The documents set forth
below are filed as exhibits to this report. Where so indicated, exhibits that were previously filed
with the SEC are incorporated by reference herein.



|Exhibit No. |  |                                                                                                                                                                                                                    | Exhibit Description | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------- | 
|            |  |                                                                                                                                                                                                                   
|2.1         |  | Agreement and Plan of Merger, dated June 13, 2014, by and between the Company and ARC
    Group, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K12G3 filed with the SEC on June 19, 2015)
|            |  |                                                                                                                                                                                                                   
|3.1         |  | Articles of Incorporation of ARC Group, Inc. (incorporated by reference to Exhibit 3.1
    to the Company’s Form 8-K12G3 filed with the SEC on June 19, 2015)                                                     
|            |  |                                                                                                                                                                                                                   
|3.2         |  | Bylaws of ARC Group Inc. (incorporated by reference to Exhibit 3.1 to the Company’s
    Form 8-K12G3 filed with the SEC on June 19, 2015)                                                                         
|            |  |                                                                                                                                                                                                                   
|4.1         |  | Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s
    Form 8-K12G3 filed with the SEC on June 19, 2015)                                                                       
|            |  |                                                                                                                                                                                                                   
|10.1+       |  | Employment Agreement, dated January 22, 2013, between the Company and Richard W. Akam (incorporated
    by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on January 28, 2013)            



61







|10.2     |  | Consulting Agreement For Term, dated July 12, 2013, by and between the Company
    and Michael P. Rosenberger (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on
    July 18, 2013)                                                    
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                                                                                
|10.3     |  | Loan Agreement, dated September 13, 2013, by and between the Company and Blue Victory Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on September 19, 2013)                                                            
|         |  |                                                                                                                                                                                                                                                                                
|10.4     |  | Promissory Note, dated September 13, 2013, issued by the Company in favor of Blue Victory Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on September 19, 2013)                                                        
|         |  |                                                                                                                                                                                                                                                                                
|10.5     |  | Consulting Agreement, dated September 13, 2013, by and between the Company and Blue Victory Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the SEC on September 19, 2013)                                                      
|         |  |                                                                                                                                                                                                                                                                                
|10.6     |  | Contribution Agreement, dated January 20, 2014, by and between the Company and Paradise on Wings Franchise Group, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on January 24, 2014)                                             
|         |  |                                                                                                                                                                                                                                                                                
|10.7     |  | Amended and Restated Operating Agreement of Paradise on Wings Franchise Group, LLC, dated January 20, 2014, by and among the Company and the other members thereto (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on January 24, 2014)
|         |  |                                                                                                                                                                                                                                                                                
|10.8     |  | Securities Purchase Agreement, dated February 27, 2014, by and between the Company and Seenu G. Kasturi (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on March 5, 2014)                                                              
|         |  |                                                                                                                                                                                                                                                                                
|10.9     |  | Promissory Note, dated February 27, 2014, issued by Seenu G. Kasturi in favor of the Company (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on March 5, 2014)                                                                         
|         |  |                                                                                                                                                                                                                                                                                
|10.10+   |  | Summary of Compensation for Daniel Slone (incorporated by reference to Exhibit 10.13 to the Company Form 10-K filed with the SEC on March 31, 2014)                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                
|10.11    |  | Settlement Agreement and Release, dated January 8, 2015, by and between the Company and J. David Eberle (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2015)                                          
|         |  |                                                                                                                                                                                                                                                                                
|23.1     |  | Consent of M&K CPAS, PLLC                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                
|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                                                                                                                                                                                                                                        



62







|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










+Management
contract or compensatory plan or arrangement.



*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.



63







SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) 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:  June 15, 2016 | By:            
|                     |                
|                     |                



Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.



|Signature             |  |                                                               | Title |               |  | Date | 
|--------------------- |  | ------------------------------------------------------------- | ----- | ------------- |  | ---- | 
|                      |  |                                                               |       |              
|/s/ Richard W. Akam   |  | Chief Executive Officer, Chief                                |       | June 15, 2016
|Richard W. Akam       |  | Operating Officer and Secretary (Principal Executive Officer) |       |              
|                      |  |                                                               |       |              
|/s/ Daniel Slone      |  | Chief Financial Officer (Principal                            |       | June 15, 2016
|Daniel Slone          |  | Financial Officer and Principal Accounting Officer)           |       |              
|                      |  |                                                               |       |              
|/s/ Ketan Pandya      |  | Director                                                      |       | June 15, 2016
|Ketan Pandya          |  |                                                               |       |              
|                      |  |                                                               |       |              
|/s/ Fred D. Alexander |  | Director                                                      |       | June 15, 2016
|Fred D. Alexander     |  |                                                               |       |              











ARC GROUP, Inc.

Index
to Financial Statements



|                                                                                                | Page
|----------------------------------------------------------------------------------------------- | ----
|                                                                                                |     
|Report of Independent Registered Public Accounting Firm                                         | F-2 
|                                                                                                |     
|Balance Sheets at December 31, 2015 and December 28, 2014                                       | F-3 
|                                                                                                |     
|Statements of Operations for the Years Ended December 31, 2015 and December 28, 2014            | F-4 
|                                                                                                |     
|Statements of Stockholders’ Deficit for the Years Ended December 31, 2015 and December 28, 2014 | F-5 
|                                                                                                |     
|Statements of Cash Flows for the Years Ended December 31, 2015 and December 28, 2014            | F-6 
|                                                                                                |     
|Notes to Financial Statements                                                                   | F-7 



F-1







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

ARC Group, Inc.

Lafayette, Louisiana



We have audited the accompanying balance sheets of ARC Group, Inc.
(the “Company”) as of December 31, 2015 and December 28, 2014, and the related statements of operations, changes in
stockholders’ equity / (deficit), and cash flows for the years then ended.  These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.



We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ARC Group, Inc. as of December 31, 2015 and December 28, 2014, and
the results of its operations and cash flows for the periods described above in conformity with accounting principles generally
accepted in the United States of America.



The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the
financial statements, the Company has insufficient
working capital and reoccurring losses from
operations, all of which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



/S/ M&K CPAS, PLLC



www.mkacpas.com

Houston, Texas

April 14, 2016





F-2









ARC Group, Inc.

Balance Sheets



|                                                                                                                                                                                      |  | December 31, |            |   | December 28, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ------------ | -
|                                                                                                                                                                                      |  | 2015         |            |   | 2014         |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Assets                                                                                                                                                                                |  |              |            |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Cash and cash equivalents                                                                                                                                                             |  | $            | 6,775      |   |              | $
|Accounts receivable, net                                                                                                                                                              |  |              | 11,724     |   |              |  
|Accounts receivable, net – related party                                                                                                                                              |  |              | 65,083     |   |              |  
|Notes receivable – related party                                                                                                                                                      |  |              | 121,638    |   |              |  
|Interest receivable – related party                                                                                                                                                   |  |              | 11,380     |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Total current assets                                                                                                                                                                  |  |              | 216,600    |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Deposits                                                                                                                                                                              |  |              | 1,806      |   |              |  
|Notes receivable, net of current portion                                                                                                                                              |  |              | 6,404      |   |              |  
|Equity investment in Paradise on Wings                                                                                                                                                |  |              | 570,828    |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Total assets                                                                                                                                                                          |  | $            | 795,638    |   |              | $
|                                                                                                                                                                                      |  |              |            |   |              |  
|Liabilities and stockholders' deficit                                                                                                                                                 |  |              |            |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Accounts payable and accrued expenses                                                                                                                                                 |  | $            | 504,037    |   |              | $
|Accrued expenses – related party                                                                                                                                                      |  |              | 29,733     |   |              |  
|Accrued interest                                                                                                                                                                      |  |              | 2,173      |   |              |  
|Advertising fund liabilities                                                                                                                                                          |  |              | -          |   |              |  
|Settlement agreements payable                                                                                                                                                         |  |              | 452,421    |   |              |  
|Accrued legal settlement                                                                                                                                                              |  |              | 194,181    |   |              |  
|Notes payable – related party                                                                                                                                                         |  |              | -          |   |              |  
|Notes payable – in default                                                                                                                                                            |  |              | 7,000      |   |              |  
|Other current liabilities                                                                                                                                                             |  |              | 2,172      |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Total current liabilities                                                                                                                                                             |  |              | 1,191,717  |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Total liabilities                                                                                                                                                                     |  |              | 1,191,717  |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Stockholders' deficit:                                                                                                                                                                |  |              |            |   |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Class A common stock – $0.01 par value: 100,000,000 shares authorized, 6,521,035 and 6,362,464 shares issued and outstanding at December 31, 2015 and December 28, 2014, respectively |  |              | 65,211     |   |              |  
|Additional paid-in capital                                                                                                                                                            |  |              | 3,638,466  |   |              |  
|Stock subscriptions receivable                                                                                                                                                        |  |              | -          |   |              |  
|Stock subscriptions payable                                                                                                                                                           |  |              | 199,863    |   |              |  
|Accumulated deficit                                                                                                                                                                   |  | $            | (4,299,619 | ) |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Total stockholders' deficit                                                                                                                                                           |  |              | (396,079   | ) |              |  
|                                                                                                                                                                                      |  |              |            |   |              |  
|Total liabilities and stockholders' deficit                                                                                                                                           |  | $            | 795,638    |   |              | $



The accompanying notes are an integral part
of these financial statements





F-3









ARC Group, Inc.

Statements of Operations



|                                                                            |  | For the Year Ended |          
|--------------------------------------------------------------------------- |  | ------------------ | ---------
|                                                                            |  | December 31, 2015  |          
|                                                                            |  |                    |          
|Revenue:                                                                    |  |                    |          
|Net revenue                                                                 |  | $                  | 499,231  
|Net revenue – related party                                                 |  |                    | 467,700  
|                                                                            |  |                    |          
|Total net revenue                                                           |  |                    | 966,931  
|                                                                            |  |                    |          
|Operating expenses:                                                         |  |                    |          
|Professional fees                                                           |  |                    | 160,178  
|Employee compensation expense                                               |  |                    | 585,128  
|General and administrative expenses                                         |  |                    | 175,179  
|                                                                            |  |                    |          
|Total operating expenses                                                    |  |                    | 920,485  
|                                                                            |  |                    |          
|Income / (loss) from operations                                             |  |                    | 46,446   
|                                                                            |  |                    |          
|Other income / (expense):                                                   |  |                    |          
|Interest expense                                                            |  |                    | (16,452  
|Income (loss) from investment in Paradise on Wings                          |  |                    | (247,717 
|Losses on litigation                                                        |  |                    | (221,323 
|Interest income — related party                                             |  |                    | 6,316    
|Other income                                                                |  |                    | -        
|                                                                            |  |                    |          
|Total other income / (expense)                                              |  |                    | (479,176 
|                                                                            |  |                    |          
|Net loss                                                                    |  | $                  | (432,730 
|                                                                            |  |                    |          
|Net loss per share – basic and fully diluted                                |  | $                  | (0.07    
|                                                                            |  |                    |          
|Weighted average number of shares
    outstanding – basic and fully diluted |  |                    | 6,500,294



The accompanying notes are
an integral part of these financial statements



F-4







ARC Group, Inc.

Statement of Stockholders' Equity / (Deficit)



|                                                                        |  |              |           |   | Additional |   |        | Stock         |  |   | Stock         |   |  |             |          |   |         |  
|----------------------------------------------------------------------- |  | ------------ | --------- | - | ---------- | - | ------ | ------------- |  | - | ------------- | - |  | ----------- | -------- | - | ------- | -
|                                                                        |  | Common Stock |           |   | Paid-in    |   |        | Subscriptions |  |   | Subscriptions |   |  | Accumulated |          |   |         |  
|                                                                        |  | Shares       |           |   | Par Value  |   |        | Capital       |  |   | Receivable    |   |  | Payable     |          |   | Deficit |  
|Balance at December 29, 2013                                            |  |              | 5,659,418 |   |            | $ | 56,594 |               |  | $ | 2,340,736     |   |  | $           | -        |   |         | $
|                                                                        |  |              |           |   |            |   |        |               |  |   |               |   |  |             |          |   |         |  
|Common stock issued for note receivable – related party                 |  |              | 206,061   |   |            |   | 2,061  |               |  |   | 337,939       |   |  |             | (170,000 | ) |         |  
|Common stock issued for services                                        |  |              | 78,433    |   |            |   | 784    |               |  |   | 69,216        |   |  |             | -        |   |         |  
|Common stock issued upon conversion of promissory notes – related party |  |              | 326,017   |   |            |   | 3,260  |               |  |   | 567,269       |   |  |             | -        |   |         |  
|Imputed interest on no-interest loans                                   |  |              | -         |   |            |   | -      |               |  |   | 75            |   |  |             | -        |   |         |  
|Common stock issued for investment in Paradise on Wings                 |  |              | 235,295   |   |            |   | 2,353  |               |  |   | 397,647       |   |  |             | -        |   |         |  
|Common stock reclassified to unissued shares                            |  |              | (142,857  | ) |            |   | (1,428 | )             |  |   | (148,572      | ) |  |             | -        |   |         |  
|Common stock issued for reverse stock split                             |  |              | 97        |   |            |   | 1      |               |  |   | (1            | ) |  |             | -        |   |         |  
|Net loss                                                                |  |              | -         |   |            |   | -      |               |  |   | -             |   |  |             | -        |   |         |  
|                                                                        |  |              |           |   |            |   |        |               |  |   |               |   |  |             |          |   |         |  
|Balance at December 28, 2014                                            |  |              | 6,362,464 |   |            | $ | 63,625 |               |  | $ | 3,564,309     |   |  | $           | (170,000 | ) |         | $
|                                                                        |  |              |           |   |            |   |        |               |  |   |               |   |  |             |          |   |         |  
|Common stock issued for services                                        |  |              | 101,429   |   |            |   | 1,015  |               |  |   | 57,586        |   |  |             | -        |   |         |  
|Common stock issued for settlement of litigation                        |  |              | 57,142    |   |            |   | 571    |               |  |   | 16,571        |   |  |             | -        |   |         |  
|Common stock issued for note receivable – related party                 |  |              | -         |   |            |   | -      |               |  |   | -             |   |  |             | 170,000  |   |         |  
|Net loss                                                                |  |              | -         |   |            |   | -      |               |  |   | -             |   |  |             | -        |   |         |  
|                                                                        |  |              |           |   |            |   |        |               |  |   |               |   |  |             |          |   |         |  
|Balance at December 31, 2015                                            |  |              | 6,521,035 |   |            | $ | 65,211 |               |  | $ | 3,638,466     |   |  | $           | -        |   |         | $



The accompanying notes are an integral
part of these financial statements



F-5







ARC Group, Inc.

Statements of Cash Flows



|                                                                             |  | For the Years Ended |           
|---------------------------------------------------------------------------- |  | ------------------- | ----------
|                                                                             |  | December 31, 2015   |           
|                                                                             |  |                     |           
|Cash flows from operating activities                                         |  |                     |           
|                                                                             |  |                     |           
|Net loss                                                                     |  | $                   | (432,730  
|Adjustments to reconcile net loss to net cash used by operating activities:  |  |                     |           
|Stock issued for compensation and amortization of stock compensation expense |  |                     | 59,012    
|Imputed interest on no-interest loans                                        |  |                     | -         
|Losses on litigation                                                         |  |                     | 221,323   
|Changes in operating assets and liabilities:                                 |  |                     |           
|Accounts receivable                                                          |  |                     | (11,724   
|Accounts receivable – related party                                          |  |                     | (22,051   
|Notes receivable                                                             |  |                     | -         
|Interest receivable – related party                                          |  |                     | (6,316    
|Deposits                                                                     |  |                     | (706      
|Equity investment in Paradise on Wings                                       |  |                     | 247,717   
|Accounts payable and accrued liabilities                                     |  |                     | (1,183    
|Accrued liabilities – related party                                          |  |                     | 8,439     
|Advertising fund liabilities                                                 |  |                     | (31,474   
|Settlement agreements payable                                                |  |                     | (88,635   
|Other current liabilities                                                    |  |                     | 975       
|                                                                             |  |                     |           
|Net cash used by operating activities                                        |  |                     | (57,353   
|                                                                             |  |                     |           
|Cash flows from investing activities                                         |  |                     |           
|                                                                             |  |                     |           
|Equity investment in Paradise on Wings                                       |  |                     | -         
|Issuance of notes receivable – related party                                 |  |                     | (297,918  
|Repayments  of notes receivable                                              |  |                     | 4,586     
|Repayments of notes receivable – related party                               |  |                     | 194,880   
|                                                                             |  |                     |           
|Net cash used by investing activities                                        |  |                     | (98,452   
|                                                                             |  |                     |           
|Cash flows from financing activities                                         |  |                     |           
|                                                                             |  |                     |           
|Proceeds from issuance of notes payable – related party                      |  |                     | 1,987,953 
|Repayments of notes payable                                                  |  |                     | (4,000    
|Repayments of notes payable – related party                                  |  |                     | (1,991,373
|Proceeds from stock subscriptions receivable                                 |  |                     | 170,000   
|                                                                             |  |                     |           
|Net cash provided by financing activities                                    |  |                     | 162,580   
|                                                                             |  |                     |           
|Net decrease in cash and cash equivalents                                    |  |                     | 6,775     
|Cash and cash equivalents, beginning of period                               |  |                     | -         
|                                                                             |  |                     |           
|Cash and cash equivalents, end of period                                     |  | $                   | 6,775     
|                                                                             |  |                     |           
|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                                       |  | $                   | -         
|Stock issued upon conversion of notes payable – related party                |  | $                   | -         
|Stock issued for stock subscriptions payable                                 |  | $                   | 49,452    
|Stock issued for settlement of litigation                                    |  | $                   | 90,000    



The accompanying notes are an integral
part of these financial statements



F-6







ARC Group, Inc.

Notes to Financial Statements



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 theDick’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 and non-traditional units like the Dick’s Wings concession stands
that the Company has at EverBank Field. The Company establishes restaurants
by entering into franchise agreements with qualified parties andgenerates 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 December 31, 2015, the
Company had 20 restaurants and two Dick’s Wings concession stands. Of the 20 restaurants, 16 were
located in Florida and four were located in Georgia. The Company’s concession stands at EverBank Field are also located in
Florida. All of the Company’s restaurants are owned and operated by franchisees, and the Company’s concession stands
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. Significant Accounting Policies



This summary of significant
accounting policies is provided to assist the reader in understanding the Company’s financial statements. The financial statements
and notes thereto are representations of the Company’s management. The Company’s management is responsible for their
integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of
America (“GAAP”) and have been consistently applied in the preparation of the financial statements.



Basis of Presentation



The
Company’s financial statements have been prepared using accounting principles generally accepted in the United States of
America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal
course of business.



Going
Concern





As
shown in the accompanying financial statements, the Company
incurred net losses of $432,730
and $193,833 for the years ended December 31, 2015 and
December 28, 2014, respectively. As of December
31, 2015, the Company's accumulated
deficit was $4,299,619. During the years ended December 31, 2015 and December 28, 2014, the Company experienced negative
cash flows from operations. Those facts create an uncertainty about the Company's ability
to continue as a going concern.



The
Company's ability to
continue as a going concern is
dependent upon its successfully executing its plans to
generate positive cash flows during fiscal
year 2016. The Company's financial statements
do not include any adjustments
that might be necessary if it were unable to continue as a going concern.





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.



F-7







ARC Group, Inc.

Notes to Financial Statements



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.



Fiscal Year



The Company utilizes a
52- or 53-week accounting period that ends on the last Sunday in December. Each of the fiscal years ended December 31, 2015 and
December 28, 2014 were 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
toRules 13a-10 and 15d-10 of the Securities Exchange Act of 1934, as amended, the
Company was not required to file a transition report in connection with the change of its fiscal year end.



Franchise Operations



The
Company enters into franchise agreements with each of its franchisees to build and operate restaurants using the Dicks Wings brand
within a defined geographic area. Franchisees are required to operate their restaurants in compliance with their franchise agreements,
which includes adherence to operating and quality control procedures established by the Company. The Company is not required to
provide loans, leases, or guarantees to franchisees or the franchisees’ employees and vendors. If a franchisee becomes financially
distressed, the Company is not required to provide financial assistance. If financial distress leads to insolvency of the franchisee
or the filing of a petition by or against the franchisee under bankruptcy laws, the Company has the right, but not the obligation,
to acquire the franchise at fair value as determined by an independent appraiser selected by the Company. Franchisees generally
remit royalty payments weekly for the prior week’s sales. Franchise and area development fees are paid upon the signing of
the related agreements.



Revenue Recognition



The Company’s revenue
consists primarily of royalty payments, franchise fees and area development fees that it receives from its franchisees.  The
Company generates revenue by entering into franchise agreements with parties to build and operate restaurants using the Dick’s
Wings® brand within a defined geographical area. The agreements have a 10-year term and can be renewed for one additional
10-year term. The Company provides the use of its Dick’s Wings trademarks and Dick’s Wings system, which includes uniform
operating procedures, standards for consistency and quality of products, technical knowledge, and procedures for accounting, inventory
control and management, in return for theroyalty payments, franchise fees and area development fees.



F-8







ARC Group, Inc.

Notes to Financial Statements



The Company recognizes
the royalties, franchise fees and area development fees that it receives as revenue when persuasive evidence of an arrangement
exists, delivery or performance has occurred, the sales price is fixed and determinable, and collectability is reasonably assured
in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 605, Revenue Recognition. Royalties are accrued as earned and are calculated each period
based on restaurant sales. Franchise fee revenue from individual franchise sales is recognized upon the opening of the franchised
restaurant when all material obligations and initial services to be provided by the Company have been performed. Area development
fees are dependent upon the number of restaurants in the territory, as are the Company’s obligations under the area development
agreement. Consequently, as obligations are met, area development fees are recognized proportionally with expenses incurred with
the opening of each new restaurant and any royalty-free periods.



The Company generated revenue
of $966,931 and $588,856 during the years ended December 31, 2015 and December 28, 2014, respectively.



Cash Equivalents



The Company considers all
highly liquid investments with an original maturity of 90 days or less on the date of purchase to be cash equivalents in accordance
with ASC Topic 305, Cash and Cash Equivalents. The Company had cash and cash equivalents of $6,775 at December 31, 2015.
The Company did not have any cash and cash equivalents at December 28, 2014.



Accounts Receivable



Accounts
receivable consists primarily of contractually-determined receivables primarily for franchise fees and royalties due from,
but not yet paid by, the Company’s franchisees. Accounts receivable, net of the allowance for doubtful accounts,
represents the estimated net realizable value of the Company’s accounts receivable. Provisions for doubtful accounts
are recorded based on historical collection experience, the age of the receivables and current economic conditions, and are
written off when they are deemed uncollectible, all in accordance with ASC Topic 310, Receivables. The Company had
accounts receivable, net of the allowance for doubtful accounts, from related parties of $65,083 and $43,033 at December
31, 2015 and December 28, 2014, respectively, and accounts receivable, net of the allowance for doubtful accounts, from unrelated third parties
of $11,724 and $-0- at December 31, 2015 and December 28, 2014, respectively.



The
accounts receivable balance at December 31, 2105 was comprised primarily of unpaid royalties, franchisee fees and licensing fees
due from one of the Company’s franchisees that was behind in its payments, all of which the Company expects to collect in
full in early 2016. Accordingly, the allowance for doubtful accounts was zero at December 31, 2015. The accounts receivable balance
at December 28, 2014 was comprised primarily of unpaid royalties due from one of the Company’s franchisees that was behind
in its payments, all of which the Company collected in full in early 2015. Accordingly, the allowance for doubtful accounts was
zero at December 28, 2014.



F-9







ARC Group, Inc.

Notes to Financial Statements



Property and Equipment



Property and equipment
is stated at cost, less accumulated depreciation and amortization, in accordance with ASC Topic 360, Property, Plant and Equipment
(“ASC 360”). Depreciation and amortization are calculated using the straight-line basis over the estimated useful lives
of the related assets. The cost of major improvements to the Company’s property and equipment are capitalized. The cost of
maintenance and repairs that do not improve or extend the life of the applicable assets is expensed as incurred. When assets are
retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any
resulting gain or loss is reported in the period realized.



The Company reviews property
and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be
recoverable in accordance with ASC 360. Recoverability is measured by comparison of the carrying amount of the assets to the future
undiscounted net cash flows that the assets are expected to generate. If the assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The
Company had property and equipment of $4,674 and accumulated depreciation of $4,674 at December 31, 2015 and December 28, 2014.



Long-Lived Assets



The Company reviews long-lived
assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable in accordance with ASC 360. Recoverability is measured by comparison of the carrying amount of the assets
to the future undiscounted net cash flows that the assets are expected to generate. If the assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of
the assets. The Company did not have any long-lived assets at December 31, 2015 and December 28, 2014.



Financial Instruments



The Company accounts for
its financial instruments in accordance with ASC Topic 825, Financial Instruments, whichrequires the disclosure
of fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the
Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other short-term liabilities
approximates their respective fair values due to the short-term maturities of these instruments. The
carrying amounts of the notes receivable and notes payable also approximates their respective fair values 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.



F-10







ARC Group, Inc.

Notes to Financial Statements



Debt Discounts, Deferred Financing Costs and Imputed Interest



The Company accounts for
debt discounts and deferred financing costs in accordance with ASC Topic 470, Debt (“ASC 470”). Debt discounts
and deferred financing costs are amortized through periodic charges to interest expense over the maximum term of the related financial
instrument using the effective interest method. The Company did not incur any amortization of debt discounts and deferred financing
costs during the years ended December 31, 2015 and December 28, 2014.



The
Company accounts for imputed interest in accordance with ASC Topic 835, Interest.  During theyears
ended December 31, 2015 and December 28, 2014, the Company borrowed funds from related parties pursuant
to loans that were interest free and payable on demand.  The loans did not have a definite term.  Based upon
the interest rates charged to the Company for comparable loans made to the Company in the recent past, the Company applied an imputed
interest rate of 6% to the loans.   In addition, since the loans did not have a definite term, the Company was unable
to calculate a discount associated with the loans.  As a result, the Company accounted for imputed interest with respect
to the loans by recording interest expense as it was incurred.  The Company incurred $75 of imputed interest during theyear ended December 28, 2014, respectively,which was credited to additional
paid-in capital since the interest was not payable. The Company did not incur any imputed interest
during the year ended December 31, 2015.



Fair Value Measurements



Fair
value is the price that would be received to sell an asset or paid to transfer a liability in the Company’s principal or
most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
In accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company determines
fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data
obtained from sources independent of the Company, and the Company’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances.



The
levels of fair value hierarchy are:



Level 1:  Quoted
prices in active markets for identical assets and liabilities at the measurement date;



Level 2:  Observable
inputs other than quoted prices included in Level 1, such as: (i) quoted prices for similar assets and liabilities in active
markets, (ii) quoted prices for identical or similar assets and liabilities in markets that are not active, and (iii) other inputs
that are observable or can be corroborated by observable market data; and



Level 3:  Unobservable
inputs for which there is little or no market data available.



A
financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input that is significant
to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment
by the Company. The Company considers observable data to be market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
In contrast, the Company considers unobservable data to be data that reflects the Company’s assumptions of what market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances.



F-11







ARC Group, Inc.

Notes to Financial Statements



Investments



On
January 20, 2014, the Company purchased 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 the investment in Paradise on Wings is set forth herein under Note 4. Investment in Paradise on Wings.



The
Company accounted for its investment in Paradise on Wings under the equity method of accounting in accordance with Financial Accounting
Standards Board Accounting Standards Codification (“ASC”) Topic 323, Investments
– Equity Method and Joint Ventures (“ASC 323”). ASC 323 provides that investments be accounted for under
the equity method of accounting when the investor has the ability to exert significant influence, but not control, over the operating
and financial policies of the investee. The determination of the level of influence that an investor has over each equity method
investment involves consideration of such factors as the investor’s ownership interest, representation on the board of directors,
participation in policy-making decisions and material intercompany transactions. Investments accounted for under the equity method
are recorded at the fair value amount of the investor’s initial investment on the balance sheet and adjusted each period
for the investor’s share of the investee’s income or loss. The investor’s share of the income or losses from
equity investments is reported as a component of other income / (expense) in the statements of operations.   Contributions
paid to, and distributions received from, equity investees are recorded as additions or reductions, respectively, to the respective
investment balance.



The
Company reviews its investment in Paradise on Wings for impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable in accordance with ASC 323. The standard
for determining whether an impairment must be recorded under ASC 323 is whether an “other-than-temporary” decline in
value of the investment has occurred. The evaluation and measurement of impairments under ASC 323 involves quantitative
and qualitative factors and circumstances surrounding the investment, such as recurring operating losses, credit defaults and subsequent
rounds of financing. If an unrealized loss on the investment is considered to be other-than-temporary, the loss is recognized in
the period the determination is made and the value of the investment is reduced by the amount of the loss.



Advertising Costs



The
Company has established a general advertising fund that it uses to pay for advertising costs, sales promotions, market research
and other support functions intended to maximize general public recognition and acceptance of the Dick’s Wings brand. Company-owned
and franchised restaurants are required to contribute at least one percent (1%), but not more than two percent (2%), of their gross
revenue to the Company’s general advertising fund.



Contributions
made by franchisees to the general advertising fund and marketing and advertising expenses paid by the general advertising fund
are not recognized as revenues and expenses. The instead constitute agency transactions. Related advertising obligations are accrued
and the costs expensed at the same time the related contributions are recognized. These advertising fees are recorded as a liability
against which specific costs are charged.



F-12







ARC Group, Inc.

Notes to Financial Statements



The
Company’s advertising fund liability was $31,474 at December 28, 2014. The Company did not have any advertising fund liability
at December 31, 2015.



Payments Received
From Vendors



Vendor
allowances include allowances and other funds that the Company receives from vendors. Certain of these funds are determined based
on various quantitative contract terms. The Company also receives vendor allowances from certain manufacturers and distributors
calculated based upon purchases made by franchisees. Vendor allowancesare not recognized as revenue. Instead, they are
recognized as a reduction in costs. The Company generally receives payment from vendors approximately
30 days from the end of a month for that month’s purchases. The Company received vendor allowances of $33,325 and $15,210
during the years ended December 31, 2015 and December 28, 2014, respectively.



Stock-Based Compensation



The Company accounts for
employee stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation –
Stock Compensation (“ASC 718”), using the modified prospective transition method. Under this method, compensation
expense includes: (a) compensation expense for all stock-based payments granted, but not yet vested, as of January 1, 2006 based
on the grant-date fair value, and (b) compensation expense for all stock-based payments granted subsequent to January 1, 2006 based
on the grant-date fair value. Such amounts have been reduced to reflect the Company’s estimate of forfeitures of all unvested
awards.



The Company accounts for
non-employee stock-based compensation in accordance with ASC 718 and ASC Topic 505, Equity (“ASC 505”). ASC
718 and ASC 505 require that the Company recognize compensation expense based on the estimated fair value of stock-based compensation
granted to non-employees over the vesting period, which is generally the period during which services are rendered by non-employees.



The Company uses the Black-Scholes
pricing model to determine the fair value of the stock-based compensation that it grants to employees and non-employees. The Black-Scholes
pricing model takes into consideration such factors as the estimated term of the securities, the conversion or exercise price of
the securities, the volatility of the price of the Company’s common stock, interest rates, and the probability that the securities
will be converted or exercised to determine the fair value of the securities. The selection of these criteria requires management’s
judgment and may impact the Company’s net income or loss. The computation of volatility is intended to produce a volatility
value that is representative of the Company’s expectations about the future volatility of the price of its common stock over
an expected term. The Company used its share price history to determine volatility and cannot predict what the price of its shares
of common stock will be in the future. As a result, the volatility value that the Company calculated may differ from the actual
volatility of the price of its shares of common stock in the future.



F-13







ARC Group, Inc.

Notes to Financial Statements



The Company recognized
stock compensation expense of $59,012 and $70,372 during the years ended December 31, 2015 and December 28, 2014, respectively.



Income Taxes



The Company uses the liability
method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
as part of the provision for income taxes in the period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized in the future.



Net deferred tax assets
consisted of the following components at December 31, 2015 and December 28, 2014:



|                                 |  | December 31, |          |   | December 28, |  
|-------------------------------- |  | ------------ | -------- | - | ------------ | -
|                                 |  | 2015         |          |   | 2014         |  
|Deferred tax assets:             |  |              |          |   |              |  
|Net operating loss carryforwards |  | $            | 908,297  |   |              | $
|Deferred tax liabilities         |  |              | ---      |   |              |  
|Valuation allowance              |  |              | (908,297 | ) |              |  
|Net deferred tax asset           |  | $            | ---      |   |              | $



The Company had net operating
loss carry-forwards of approximately $2,383,982 and $2,231,587 at December 31, 2015 and December 28, 2014, respectively, that
may be offset against future taxable income between the years of 2023 and 2033. No tax benefit has been reported in the December
31, 2015 and December 28, 2014 financial statements because the potential tax benefit is offset by a valuation allowance of the
same amount. The Company had no uncertain tax positions at December 31, 2015 and December 28, 2014.



Utilization
of net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations contained
in the Internal Revenue Code of 1986, as amended, as well as similar state and foreign provisions. These ownership changes may
limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income and tax, respectively.
On November 2, 2012, William D. Leopold purchased 2,218,572 shares of the Company’s common stock,
which represented approximately 41.2% of the outstanding shares of the Company’s common stock on that date, from Michael
Rosenberger, who was then serving as the Company’s Chief Executive Officer, Chief Financial Officer, Secretary and sole member
of the Company’s board of directors. This transaction could be deemed to have resulted in a change in ownership of the Company.Subsequent ownership changes could further affect the limitation in future years. These annual limitation provisions may
result in the expiration of certain net operating losses and credits before utilization.



F-14







ARC Group, Inc.

Notes to Financial Statements



Recent Accounting Pronouncements



In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue with
Contracts from Customers (“ASU 2014-09”). ASU 2014-09 supersedes the current revenue recognition guidance, including
industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue
to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning
after December 15, 2016 and early adoption is not permitted. The Company is currently evaluating the impact of the updated guidance
but it does not believe the adoption of ASU 2014-09 will have a material impact on its financial statements.



In August 2014, the FASB
issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This update requires management
to assess an entity’s ability to continue as a going concern by incorporating and expanding on certain principles that are
currently in U.S. auditing standards. Specifically, ASU 2014-15: (i) provides a definition of the term substantial doubt, (ii)
requires an evaluation every reporting period including interim periods, (iii) provides principles for considering the mitigating
effects of management’s plans, (iv) requires certain disclosures when substantial doubt is alleviated as a result of consideration
of management’s plans, (v) requires an express statement and other disclosures when substantial doubt is not alleviated,
and (vi) requires an assessment for a period of one year after the date that the financial statements are issued or available to
be issued. This update is effective for the fiscal years ending after December 15, 2016 and for annual periods and interim periods
thereafter. Early application is permitted. ASU 2014-15 did not have a material impact on the Company’s financial statements.



In February 2015, the FASB
issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis(“ASU 2015-02”). ASU 2015-02 modifies
the analysis that must be performed to determine whether a reporting entity should consolidate certain types of legal entities.
The updated guidance is effective for interim and annual periods beginning after December 15, 2015, and early adoption is permitted.
The Company does not believe the adoption of ASU 2014-09 will have a material impact on its financial statements.



The Company reviewed all
other significant newly-issued accounting pronouncements and concluded that they either are not applicable to the Company’s
operations or that no material effect is expected on the Company’s financial statements as a result of future adoption.



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.



F-15







ARC Group, Inc.

Notes to Financial Statements



All of the shares of
common stock underlying exercisable or convertible securities that were outstanding at December 31, 2015 and December 28,
2014 were excluded from the computation of diluted net loss per share for the years ended December 31, 2015 and December 28,
2014 because they were anti-dilutive. As a result, basic net loss per share was equal to diluted net loss per share for the
years ended December 31, 2015 and December 28, 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.



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.



F-16







ARC Group, Inc.

Notes to Financial Statements



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 recordedat the fair value amount of the Company’s initial investmentand 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.



Set
forth below is a summary of the unaudited income statement of Paradise on Wings for the year ended December 31, 2015 and the period
beginning January 21, 2014 and ending December 28, 2014 provided to the Company by Paradise on Wings.



|Statement of Operations              |  | Year Ended December 31, 2015 |          |   | Period From January 21, 2014 Through December 28, 2014 |  
|------------------------------------ |  | ---------------------------- | -------- | - | ------------------------------------------------------ | -
|Revenue                              |  | $                            | 348,781  |   |                                                        | $
|Operating expenses                   |  |                              | (585,384 | ) |                                                        |  
|Income (loss) from operations        |  |                              | (236,603 | ) |                                                        |  
|Other income (expense)               |  |                              | (258,832 | ) |                                                        |  
|Net income (loss)                    |  | $                            | (495,435 | ) |                                                        | $
|                                     |  |                              |          |   |                                                        |  
|Company’s share of net income (loss) |  | $                            | (247,717 | ) |                                                        | $



F-17







ARC Group, Inc.

Notes to Financial Statements



Set
forth below is a summary of the unaudited balance sheet of Paradise on Wings at December 31, 2015 and December 28, 2014 provided
to the Company by Paradise on Wings.





|Balance Sheet                |  | December 31, 2015 |         |  | December 28, 2014 |  
|---------------------------- |  | ----------------- | ------- |  | ----------------- | -
|Current assets               |  | $                 | 62,460  |  |                   | $
|Equity investment            |  |                   | 141,168 |  |                   |  
|Note receivable              |  |                   | -       |  |                   |  
|Total assets                 |  | $                 | 203,628 |  |                   | $
|                             |  |                   |         |  |                   |  
|Total liabilities            |  | $                 | 101,023 |  |                   | $
|Equity                       |  |                   | 102,605 |  |                   |  
|Total liabilities and equity |  | $                 | 203,628 |  |                   | $



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.



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 at December 31, 2015 and December 28, 2014:



|                                       |  | Level 1 |     |  | Level 2 |   |         | Level 3 | 
|-------------------------------------- |  | ------- | --- |  | ------- | - | ------- | ------- | 
|Equity investments – December 31, 2015 |  | $       | -0- |  |         | $ | 570,828 |         | 
|Equity investments – December 28, 2014 |  | $       | -0- |  |         | $ | 818,545 |         | 



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.



F-18







ARC Group, Inc.

Notes to Financial Statements



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, Inc.
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 year ended December 28, 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.



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.



F-19







ARC Group, Inc.

Notes to Financial Statements



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 71,429shares 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.



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 approximately2,000 square feet of space.
The lease provides for an initial monthly rent payment of $1,806 and expires on December 31, 2017.



F-20







ARC Group, Inc.

Notes to Financial Statements



Future minimum annual payments
under the leases as of December 31, 2015 are as follows:



|Year       |  | Lease Payment |       
|---------- |  | ------------- | ------
|2016       |  | $             | 22,871
|2017       |  |               | 22,069
|2018       |  |               | -0-   
|2019       |  |               | -0-   
|2020       |  |               | -0-   
|Thereafter |  |               | -0-   
|Total      |  | $             | 44,940



Note 7. Notes Receivable



Notes Receivable - Unrelated Parties



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 $2,652 and $10,313 were made
against the loans during the years ended December 31, 2015 and December 28, 2014, respectively.



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
$1,934 and $503 were made against the loan during the years ended December 31, 2015 and December 28, 2014, respectively.



Notes Receivable - Related Parties



In December 2013, the Company
loaned $6,000 to DWG Acquisitions, LLC, a Florida limited liability company (“DWG Acquisitions”). The
loan accrued interest at a rate of 6% per year and was 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.



Between
April and June 2014, the Company loaned $17,952 to DWG Acquisitions.  The loan
accrued interest at a rate of 6% per year and was payable on demand. The loan was paid off in full by Blue
Victory during theyear 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 October 2014, the Company
loaned $3,700 to Yobe Acquisition, LLC (“Yobe Acquisition”). The loan accrued interest at a rate of 6% per year and was payable on demand. No payments
were made under the loan during the year ended December 28, 2014. The loan was paid off in full by Blue
Victory during theyear ended December 31, 2015. 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.



F-21







ARC Group, Inc.

Notes to Financial Statements



In November and December
2014, the Company loaned a total of $16,800 to Quantum Leap QSR, LLC (“Quantum Leap”). The loan accrued interest at a rate of 6% per year and was
payable on demand. No payments were made under the loan during the year ended December 28, 2014. The loan was paid off in full
by Blue Victory during the year ended December 31, 2015. 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.



During the year ended December
31, 2015, the Company loaned a total of $121,638 to Racing QSR, LLC (“Racing QSR”). The loan accrued interest at a rate of 6% per year and was payable
on demand. Racing QSR did not make any payments under the loan during the year ended December 31, 2015. Accordingly, the outstanding
balance of the loan was $121,638 at December 31, 2015.



The carrying value of the
Company’s outstanding notes receivable was $128,042 at December 31, 2015. A total of $6,404 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 $121,638 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 $7,000 and $14,420 at December 31, 2015 and December
28, 2014, respectively, of which $7,000 and $11,000 was in default on December 31, 2015 and December 28, 2014, respectively. Accrued
interest under the Company’s outstanding promissory notes was $2,174 and $11,480 at December 31, 2015 and December 28, 2014,
respectively.



A summary of the terms
of the promissory notes that were outstanding during theyears ended December 31, 2015 and December
28, 2014is provided below.



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. In April 2015, the Company repaid notes
to two of these investors representing a total original principal amount of $4,000. As a result, on December 31, 2015, a total
original principal balance of $7,000 was outstanding under the two remaining notes. These notes are currently in default.



F-22







ARC Group, Inc.

Notes to Financial Statements



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.



F-23







ARC Group, Inc.

Notes to Financial Statements



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.



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 thethree-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.



Between January 22, 2014
and December 28, 2014, the Company borrowed an additional $1,445,216 under the credit facility, and between June 30, 2014 and December
28, 2014, the Company repaid $1,441,796 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 December 31, 2015, the Company borrowed an additional $1,987,953 under the credit facility. During the year ended December 31, 2015, repayments of $1,991,373 were made by the Company. The loan was paid off in full by the Company
during the year ended December 31, 2015.



The carrying value of the
Company’s outstanding promissory notes, net of unamortized discount, was $7,000 and $14,420 at December 31, 2015 and December
28, 2014, respectively, as follows:



|                              |  | December 31, |       |  | December 28, |  
|----------------------------- |  | ------------ | ----- |  | ------------ | -
|                              |  | 2015         |       |  | 2014         |  
|Notes payable – related party |  | $            | -0-   |  |              | $
|Notes payable – in default    |  |              | 7,000 |  |              |  
|Total notes payable, net      |  | $            | 7,000 |  |              | $



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 December 31, 2015 and December 28,
2014, respectively, of which 6,521,035 and 6,362,464 shares of common stock were outstanding at December 31, 2015 and December
28, 2014, respectively.



F-24







ARC Group, Inc.

Notes to Financial Statements



Stock Issuances



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 year ended December 28, 2014.



F-25







ARC Group, Inc.

Notes to Financial Statements



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.



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 was unsecured, accrued interest at a rate of 6% per annum, and had a maturity date of March 31, 2015. The principal
and interest were payable in four equal quarterly installments of $85,000 beginning June 30, 2014. The investment was reflected
in stock subscriptions receivable at December 28, 2014. As of December 28, 2014, a total of $170,000 remained outstanding under
the promissory note. The promissory note was paid off in full by Mr. Kasturi during the year ended December 31, 2015.



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 Akamearned 71,429sharesof common stock under the terms of his employment agreement with the Company. 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
$548 of stock compensation expense in connection therewith during the year ended December 31, 2015.
The Company also recognized $49,863 of stock compensation expense during the year ended December 31, 2015 in connection with the
vesting of the shares of common stock to be earned to Mr. Akam on January 1, 2016 under the terms of his employment agreement with
the Company.



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 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, which valued
the shares at $17,143. The Company recorded a loss on settlement of litigation of $27,143, comprised of the $100,000
settlement amount plus the $17,143 value of the shares, less the $90,000 stock payable recorded before the settlement of the
legal proceeding. A description of the legal proceeding and settlement and release
agreement is set forth herein under Note 13. Judgments in Legal Proceedings.



F-26







ARC Group, Inc.

Notes to Financial Statements



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



In
August 2015, the Company issued 20,000 shares of its common stock to one of its non-executive employees as incentive compensation.
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 $6,600 of stock compensation expense in connection therewith during
the year ended December 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 years ended December 31, 2015
and December 28, 2014, and no stock options or warrants were exercised or outstanding during the years ended December 31, 2015
and 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 31, 2015, 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 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 31, 2015, 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.



F-27







ARC Group, Inc.

Notes to Financial Statements



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 three-year 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 for a concession stand to be
located at EverBank Field in Jacksonville, Florida. 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. In July 2015, the Company extended its sponsorship agreement with the Jaguars by an additional
two years and entered into a subcontractor concession agreement with Ovations Food Services, L.P. for a second concession stand
at EverBank Field. The Company subsequently assigned all of its rights and obligations under the second concession agreement to
DWG Acquisitions in return for an additional fee of $3,000 per month for each full or partial month during which the concession
agreement is in effect. The Company maintained the fee paid to DWG Acquisitions at $2,000 per month. Seenu G. Kasturi owns approximately
8.8% 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 $24,000 from DWG Acquisitions under the assignment agreements during the years ended December 31, 2015 and
December 28, 2014.



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 is completed. Seenu G. Kasturi owns approximately 8.8% 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. The Company had total loans of $3,420 outstanding
under the credit facilityas of December 28, 2014. The Company did not have any
loans outstanding under the credit facility at December 31, 2015. A description of the credit facility is set forth herein under
Note 8. Debt Obligations.



F-28







ARC Group, Inc.

Notes to Financial Statements



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 8.8% 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 $69,545 and $52,328 in royalties from DWG Acquisitions under the agreementduring the
years ended December 31, 2015 and December 28, 2014, respectively.



In December 2013, the Company
loaned $6,000 to DWG Acquisitions. The loan accrued interest at a rate of 6% per year and was payable on demand. The loan was paid off in full by Blue
Victory during theyear ended December 28, 2014. Seenu G. Kasturi owns approximately 8.8% 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 accrued interest at a rate of 6% per year and was payable on demand. The loan was paid off in full by Blue Victory during
theyear ended December 28, 2014. Seenu G. Kasturi owns approximately 8.8% 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 was unsecured, accrued interest at a rate of 6% per annum, and had a maturity date of March 31, 2015. The principal
and interest were payable in four equal quarterly installments of $85,000 beginning June 30, 2014. Mr. Kasturi owns approximately
8.8% 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. A description of the transaction is set forth
herein under Note 9. Capital Stock.



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 8.8% 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 $98,802 and $54,611 in royalties from DWG Acquisitions under the agreementduring
the years ended December 31, 2015 and December 28, 2014, respectively.



F-29







ARC Group, Inc.

Notes to Financial Statements



Between April and June
2014, the Company loaned $17,952 to DWG Acquisitions. The loan accrued interest at a rate of 6% per year and was payable on demand. Seenu G. Kasturi owns approximately 8.8% 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 accrued interest at a rate of 6% per year and was payable on demand. Seenu G. Kasturi owns approximately 8.8% 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 $16,800 to Quantum Leap. The loan accrued interest at a rate of 6% per year and was 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 8.8% 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 $58,180and $1,502 in royalties
from DWG Acquisitions under the agreementduring the years ended December 31, 2015 and December 28, 2014, respectively.



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 8.8% 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 $44,901 in royalties and
$30,000 in franchise fees from DWG Acquisitions under the agreementduring the year ended December 31, 2015.



In June 2015, DWG Acquisitions
became the franchisee of the Dick’s Wings restaurant located in Fleming Island, 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. Seenu G. Kasturi owns
approximately 8.8% 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 $32,819 in royalties and
$30,000 in franchise fees from DWG Acquisitions under the agreementduring the year ended December
31, 2015.



F-30







ARC Group, Inc.

Notes to Financial Statements



In September 2015, DWG
Acquisitions became the franchisee of the Dick’s Wings restaurant located in Panama
City Beach, 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. Seenu G. Kasturi owns approximately 8.8% 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 $16,372 in royalties and
$30,000 in franchise fees from DWG Acquisitions under the agreementduring the year ended December
31, 2015.



During the year ended December
31, 2015, the Company loaned a total of $121,638 to Racing QSR, LLC (“Racing QSR”). The loan accrued interest at a rate of 6% per year and was payable
on demand. Seenu G. Kasturi owns approximately 8.8% of the Company’s common stock and all of the equity interests in Racing
QSR. He also serves as the President, Treasurer and Secretary, and sole member, of Racing QSR. A description of
the loan is set forth herein under Note 7. Notes Receivable.



During the years ended December 31, 2015 and December 28, 2014 the Company earned $467,760 and $162,441
from companies controlled by Seenu Kasturi. Additionally, during the years ended December 31, 2015 and December 28, 2014 the Company
borrowed $1,987,953 and $1,656,116 and repaid $1,991,373 and $1,207,806 from Blue Victory Holdings, an entity controlled by Seenu
Kasturi.



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 December 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 December 31, 2015 and December 28, 2014. Interest expense in the amount of $11,365 and $10,440
was accrued on the outstanding balance of the settlement agreement payable during the years ended December 31, 2015 and December
28, 2014, respectively. The interest expense was credited to settlement agreements payable.



F-31







ARC Group, Inc.

Notes to Financial Statements



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 2015, 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 byEberlein the legal proceeding,
and the complaint was dismissed with prejudice. The Company recognized a loss on the settlement of litigation of $27,142 during
the year ended December 31, 2015 in connection therewith.



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.  InAugust 2014, the court
granted the Company’s motion to dismiss the complaint.



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 $194,181 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. The Company accrued $194,181 for potential legal settlement at December 31, 2015.



Note 14. Subsequent Events



In
January 2016, Richard Akamearned 71,429sharesof common stock under the terms of his employment agreement with the Company. A description
of Mr. Akam’s employment agreement is set forth herein under Note 6. Commitments and Contingencies.



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



F-32







Exhibit
Index



|Exhibit  |                                                                                                                                                                         |  | Exhibit Description | 
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | 
|         |                                                                                                                                                                         |  |                     | 
|23.1     | Consent of M&K CPAS, PLLC (incorporated by reference to Exhibit 23.1 of the
    Company’s annual report on Form 10-K, filed with the SEC on April 14, 2016.)           
|         |                                                                                                                                                                        
|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.