UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549

FORM 10-K
(Mark One)

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 26, 2022 or

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 0-12919

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

Missouri
 
45-3189287
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

3551 Plano Parkway
   
The Colony, Texas
 
75056
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code:   (469) 384-5000

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

Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
RAVE
 
Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:    None

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

As of December 26, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $14.2 million computed by reference to the price at which the common equity was last sold on the NASDAQ Capital Market.

As of September 16, 2022, there were 16,400,539 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, to be filed pursuant to Section 14(a) of the Securities Exchange Act in connection with the registrant’s annual meeting of shareholders scheduled for December 6, 2022, have been incorporated by reference in Part III of this report.


1

Forward-Looking Statements

This Form 10-K contains certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are intended to be covered by the safe harbors created thereby.  Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or similar expressions.  These statements include the plans and objectives of management for future operations, including plans and objectives relating to future growth of our business activities and availability of funds.  Statements that address business and growth strategies, performance goals, projected financial condition and operating results, our understanding of our competition, industry and market trends, and any other statements or assumptions that are not historical facts are forward-looking statements.

The forward-looking statements included in this Form 10-K are based on current expectations that involve numerous risks and uncertainties.  Assumptions relating to these forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions, regulatory framework and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.  Although we believe that the assumptions underlying these forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate.  In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of such information should not be regarded as a representation that our objectives and plans will be achieved.

PART I

ITEM 1.
BUSINESS.

General

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”) franchise pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors.

As of June 26, 2022, we had 150 franchised Pizza Inn restaurants, 31 franchised Pie Five Units, and 9 licensed PIE Units.  The 119 domestic franchised Pizza Inn restaurants were comprised of 72 Buffet Units, 10 Delco Units and 37 Express Units.  As of June 26, 2022, there were 31 international franchised Pizza Inn restaurants.  Domestic Pizza Inn restaurants and kiosks were located predominantly in the southern half of the United States, with Texas, Arkansas, North Carolina and Mississippi accounting for approximately 23%, 22%, 13% and 9%, respectively, of the total number of domestic units.

Our History

The Company has offered consumers affordable, high quality pizza since 1958, when the first Pizza Inn restaurant opened in Dallas, Texas.  We awarded our first franchise in 1963 and opened our first buffet restaurant in 1969.  We began franchising the Pizza Inn brand internationally in the late 1970s.  In 1993, our stock began trading on the NASDAQ Stock Market, and presently trades on the NASDAQ Capital Market under the ticker symbol “RAVE.”  In June 2011, we opened the first Pie Five restaurant in Ft. Worth, Texas.  In November 2012, we signed our first franchise development agreement for Pie Five.  In 2019, we launched the PIE kiosk and convenience store solution to meet the consumer demand for tasty and high-quality pizzas within a grab-and-go delivery model.

Our Concepts

We operate and franchise restaurant concepts under two distinct brands: Pizza Inn and Pie Five.

Pizza Inn

We franchise Buffet Units, Delco Units and Express Units under the Pizza Inn brand.  Additionally, we license PIE Units under the Pizza Inn brand.  Buffet Units and Delco Units feature crusts that are hand-made from dough made fresh in the restaurant each day.  Our pizzas are made with a proprietary all-in-one flour mixture, real mozzarella cheese and a proprietary mix of classic pizza spices.  In international markets, the menu mix of toppings and side items is occasionally adapted to local tastes.

Buffet Units offer dine-in, carryout and catering service and, in many cases, also offer delivery service.  Buffet Units offer a variety of pizza crusts with standard toppings and special combinations of toppings in addition to pasta, salad, sandwiches, appetizers, desserts and beverages, including beer and wine in some locations, in an informal, family-oriented atmosphere.  We occasionally offer other items on a limited promotional basis.  Buffet Units are generally located in free standing buildings or strip center locations in retail developments near offices, shopping centers and residential areas.  The current standard Buffet Units are between 2,100 and 4,500 square feet in size and seat 120 to 185 customers.  The interior decor is designed to promote a casual, lively, contemporary, family-style atmosphere.  Some Buffet Units feature game rooms that offer a range of electronic game entertainment for the entire family.

2

Delco Units offer delivery and carryout service only and are typically located in shopping centers or other in-line retail developments.  Delco Units typically offer a variety of crusts and some combination of side items.  Delco Units occupy approximately 1,200 square feet, are primarily production facilities and, in most instances, do not offer seating.  The decor of the Delco Unit is designed to be bright and highly visible and feature neon lighted displays and awnings.  We have attempted to locate Delco Units strategically to facilitate timely delivery service and to provide easy access for carryout service.

Express Units serve our customers through a variety of non-traditional points of sale.  Express Units are typically located in a convenience store, food court, college campus, airport terminal, travel plaza, athletic facility or other commercial facility.  They have limited or no seating and solely offer quick carryout service of a limited menu of pizza and other foods and beverages.  An Express Unit typically occupies approximately 200 to 400 square feet and is commonly operated by the operator or food service licensee of the commercial host facility.  We have developed a high-quality pre-prepared crust that is topped and cooked on-site, allowing this concept to offer a lower initial investment and reduced labor and operating costs while maintaining product quality and consistency.  Like Delco Units, Express Units are primarily production-oriented facilities and, therefore, do not require all of the equipment, labor or square footage of the Buffet Unit.

PIE Units serve customers through a non-traditional, licensed pizza-only model called Pizza Inn Express. Like Delco Units and Express Units, the PIE Units are primarily production-oriented facilities and, therefore, do not require all of the equipment, labor or square footage of the Buffet Unit. The Company does not intend to open additional PIE Units in the foreseeable future.

Pie Five

Pie Five is a fast-casual pizza concept that creates individualized pizzas which are baked in our specially designed oven.  Pizzas are created at the direction of our customers who choose from a variety of freshly prepared and displayed proprietary and non-proprietary toppings, cheeses, sauces and doughs.  Customers can also get freshly prepared side salads, also made to order from our recipes or at the customer’s direction.  They can also choose from several baked daily desserts like brownies, cookie pies, and cakes.  A variety of soft beverages are available, as well as beer and wine in some locations.

Traditional Pie Five restaurants typically occupy leased, in-line or end-cap space of between 1,800 and 2,400 square feet in retail strip or multi-unit retail space.  With seating for 65 to 85 customers in most units, and patio seating where available, Pie Five restaurants primarily serve lunch and dinner to families, adults and kids of all ages.  Pie Five restaurants typically are in high traffic, high visibility urban or suburban sites in mid to large-size metropolitan areas.  Sales are predominantly on-premise though carry out and delivery are offered as well. Due to the relatively compact footprint of the restaurants, and other operating advantages, we believe Pie Five is also well suited for non-traditional locations such as airports.

Site Selection

We consider the restaurant site selection process critical to a restaurant’s long-term success and devote significant resources to the investigation and evaluation of potential sites. The site selection process includes a review of trade area demographics using a third-party customer and site selection tool, as well as a proprietary evaluation process.  We may also rely on a franchisee’s knowledge of the trade area and market characteristics when selecting a location for a franchised restaurant. A member of our development team visits each potential domestic restaurant location.

Development and Operations

New Unit Development

We intend to expand the Pizza Inn system domestically and internationally in markets with significant long-term growth potential and where we believe we can use our competitive strengths to establish brand recognition and gain local market share.  We plan to expand our Pizza Inn branded domestic restaurant base primarily through opening new franchised restaurants with new and existing franchisees. We expect to evaluate the continued development of new Pizza Inn Buffet and Delco Units in international markets in fiscal 2023, particularly in the Middle East.

The Company previously granted area developer rights for Pizza Inn restaurants in existing domestic markets. However, the Company is no longer pursuing such agreements.  A Pizza Inn area developer typically paid a negotiated fee to purchase the right to operate or develop restaurants within a defined territory and agreed to a multi-restaurant development schedule. The area developer assisted us in local franchise service and quality control in exchange for half of the franchise fees and royalties from all restaurants within the territory during the term of the agreement.

3

We intend to continue developing franchised Pie Five Units domestically and internationally. The rate at which we will be able to continue to expand the Pie Five concept through franchise development is determined in part by our success at selecting qualified franchisees, by our ability to identify satisfactory sites in appropriate markets and by our ability to continue training and monitoring our franchisees. We intend to continue to focus on franchise development opportunities with experienced, well-capitalized, restaurant operators.  In addition, we intend to take the brand into international markets.

Domestic Franchise Operations

Franchise and development agreements. Our current standard forms of domestic franchise agreements provide for the following basic terms:



Pizza Inn


Pie Five



Buffet Unit


Delco Unit


Express Unit


Pie Five Unit

Franchise fee per unit

$
30,000


$
10,000


$
5,000


$
30,000

Initial franchise term

20 years


10 years


5 years


10 years

Renewal period

10 years


5 years


5 years


5 years

Royalty rate % of sales


4
%


4
%


4
%


6
%
National ad fund % of sales


3
%


3
%


3
%


2
%
Required total ad spending % of sales


4
%


4
%


4
%


5
%

Since the Pizza Inn concept was first franchised in 1963, industry franchising concepts and development strategies have evolved, and our present franchise relationships are evidenced by a variety of contractual forms.  Common to those forms are provisions that: (i) require the franchisee to follow the Pizza Inn system of restaurant operation and management, (ii) require the franchisee to pay a franchise fee, contribute a specified percentage of sales to a marketing fund managed by the Company, and pay continuing royalties, and (iii) except for Express Units, prohibit the development of one restaurant within a specified distance from another.

We launched the franchise program for Pie Five in fiscal 2013.  Our Pie Five franchise agreement requires that the franchisees: (i) follow the Pie Five system of restaurant operation and management, (ii) pay a franchise fee and continuing royalties, (iii) contribute a specified percentage of sales to a marketing fund managed by the Company, and (iv) only open restaurants that comply with site and design standards determined by the Company.

Training.  We offer numerous training programs for the benefit of franchisees and their restaurant crew managers.  The training programs, taught by experienced Company employees, focus on food preparation, service, cost control, sanitation, safety, local store marketing, personnel management and other aspects of restaurant operation.  The training programs include group classes, supervised work in restaurants and special field seminars.  Initial and certain supplemental training programs are offered free of charge to franchisees, who pay their own travel and lodging expenses.  New franchisees also receive on-site training from Company employees to assist with their first two restaurant openings under their development agreements.  Restaurant managers train their staff through on-the-job training, utilizing video and printed materials produced by us.

Standards.  We require franchisee adherence to a variety of standards designed to ensure proper operations and to protect and enhance the Pizza Inn and Pie Five brands.  All franchisees are required to operate their restaurants in compliance with these written policies, standards and specifications, which include matters such as menu items, ingredients, materials, supplies, services, furnishings, decor and signs.  Our efforts to maintain consistent operations may result, from time to time, in the closing of certain restaurants that have not achieved and maintained a consistent standard of quality or operations. We also maintain adherence to our standards through ongoing support and education of our franchisees by our franchise business consultants, who are deployed locally in markets where our franchisees are located.

Domestic Kiosk License Operations

Kiosk license agreements. Our PIE Units are typically offered for five-year initial license periods with options for additional five year renewals.  PIE Unit licensees are not charged development fees, license fees, royalties, or advertising assessments.  PIE Unit license agreements require that the licensee comply with standards of the Pizza Inn brand, including marketing, kiosk system configuration, and sales and sourcing of authorized products and services. The mandated products and sourcing provisions within the PIE Unit licensing agreement result in supplier rebates for the Company.

Training.  New licensees and their PIE Unit employees must attend and successfully complete our training program, which consists of a single day of training at the licensed location.  PIE Unit managers train their staff through on-the-job training, utilizing video and printed materials produced by us.

4

Standards.  We require licensee adherence to a variety of standards designed to ensure proper operations and to protect and enhance the Pizza Inn brand.  All licensees are required to operate their kiosks in compliance with these written policies, standards and specifications, which include matters such as menu items, ingredients, materials, supplies, services, furnishings, decor and signs.  Our efforts to maintain consistent operations may result, from time to time, in the closing of certain kiosks that have not achieved and maintained a consistent standard of quality or operations. We also maintain adherence to our standards through ongoing support and education of our licensees by our franchise business consultants, who are deployed locally in markets where our licensees are located.

Company-Owned Restaurant Operations

As of June 26, 2022, we did not operate any Company-owned restaurants. We presently intend to open and operate Company-owned restaurants in the future.

International Franchise Operations

We also offer master license rights to develop Pizza Inn and Pie Five restaurants in certain foreign countries, with negotiated fees, development schedules and ongoing royalties.  A master licensee for a foreign country pays a negotiated fee to purchase the right to develop and operate restaurants within a defined territory, typically for a term of 20 years, plus a ten-year renewal option.  The master licensee agrees to a multi-restaurant development schedule and we train the master licensee to monitor and assist franchisees in their territory with local service and quality control, with support from us.  In return, the master licensee typically retains half the franchise fees and half the royalties on all restaurants within the territory during the term of the agreement.  Master licensees may open restaurants that they own and operate, or they may open sub-franchised restaurants owned and operated by third parties through agreements with the master licensee, but subject to our approval.

Our first franchised Pizza Inn restaurant outside of the United States opened in the late 1970s.  As of June 26, 2022, there were 31 Pizza Inn restaurants operating internationally. Except for three restaurants in Honduras, all of the Pizza Inn restaurants operated or sub-licensed by our international master licensees are in the United Arab Emirates, Saudi Arabia and adjoining countries. Our ability to continue to develop select international markets is affected by a number of factors, including our ability to locate experienced, well-capitalized developers who can commit to an aggressive multi-restaurant development schedule and achieve maximum initial market penetration with minimal supervision by us.

Food and Supply Distribution

Our franchisees and licensees purchase food and supplies directly from authorized, reputable, and experienced supply and distribution companies. The Company provides sourcing, quality assurance, and research and development for both the Pizza Inn and Pie Five systems.  The authorized distributors make deliveries to all domestic units from several distribution centers, with delivery territories and responsibilities for each determined according to geographical region.  As a franchisor, the Company is able to leverage the advantages of direct vendor negotiations and volume purchasing of food, equipment and supplies for the franchisees’ and licensees’ benefit in the form of a concentrated, one-truck delivery system, competitive pricing and product consistency.  Franchisees and licensees are able to source all products and ingredients from authorized distributors.  In order to assure product quality and consistency, our franchisees and licensees are required to purchase from authorized distributors certain food products that are proprietary to the Pizza Inn and Pie Five systems, including cheese, pizza sauce, flour mixture, certain meats and spice blend.  Franchisees and licensees may purchase other non-proprietary food products and supplies either from authorized distributors or from other suppliers who meet our requirements for quality and reliability.

Non-proprietary food and ingredients, equipment and other supplies are generally available from several qualified sources.  With the exception of several proprietary food products, such as cheese and dough flour, we are not dependent upon any one supplier or a limited group of suppliers.  We contract with established food processors for the production of our proprietary products according to our specifications.

We have not experienced any significant shortages of supplies or any delays in receiving our food or beverage inventories, restaurant supplies or products, but disruption of supply chains as a result of COVID-19 or other factors could cause difficulty in obtaining inventories or supplies in the future. Prices charged by our suppliers are subject to fluctuation, and franchisees and licensees bear increased costs or benefit from savings through changes in product pricing.  We do not engage in commodity hedging but enter into pricing arrangements for up to a year in advance for certain high-volume products.

Marketing and Advertising

By communicating a common brand message at the regional, local market and restaurant levels, we believe we can create and reinforce a strong, consistent marketing message to consumers and increase our market share.  We offer or facilitate several ways for the brand image and message to be promoted at the local and regional levels.

5

Pizza Inn and Pie Five franchisees contribute a specified percentage of their sales to the Company to fund the creation and production of various marketing and advertising programs and materials, which may include print and digital advertisements, direct mail materials, customer satisfaction systems, social media and e-mail marketing, television and radio commercials, in-store promotional materials, marketing and public relations services, and consumer research.  We anticipate continuing to optimize Pizza Inn and Pie Five marketing activities commensurate with the contributions of the marketing funds.

Pizza Inn and Pie Five franchisees are required to conduct independent marketing efforts in addition to their participation in the national marketing programs for each brand.  We provide franchised restaurants with access to an assortment of local store marketing materials, including pre-approved print, radio, and digital media marketing materials.  We also provide local store marketing materials and programs specifically to support new restaurant openings.

Trademarks and Quality Control

We own various trademarks, including the names “Pizza Inn” and “Pie Five,” that are used in connection with the restaurants and have been registered with the United States Patent and Trademark Office.  The duration of our trademarks is unlimited, subject to periodic renewal and continued use.  In addition, we have obtained trademark registrations for our marks in several foreign countries and have periodically re-filed and applied for registration in others.  We believe that we hold the necessary rights for protection of the trademarks essential to our business.

Government Regulation

We and our franchisees are subject to various federal, state and local laws affecting the operation of our restaurants.  Each restaurant is subject to licensing and regulation by several governmental authorities, which include health, safety, sanitation, wage and hour, alcoholic beverage, building and fire agencies in the state and municipality in which the restaurant is located.  Difficulties in obtaining, or the failure to obtain, required licenses or approvals could delay or prevent the opening of a new restaurant or require the temporary or permanent closing of an existing restaurant in a particular area.

We are subject to Federal Trade Commission (“FTC”) regulations and to various state laws regulating the offer and sale of franchises.  The FTC requires us to furnish to prospective franchisees a franchise disclosure document containing prescribed information.  Substantive state laws that regulate the franchisor-franchisee relationship presently exist in a number of states, and bills have been introduced in Congress from time to time that would provide for further federal regulation of the franchisor-franchisee relationship in certain respects.  Some foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship.

Employees

As of June 26, 2022, we had 24 employees. None of our employees are currently covered by collective bargaining agreements.

Industry and Competition

The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater brand recognition and financial and other resources than the Company.  Competitors include a number of international, national and regional restaurant and pizza chains, as well as local restaurants and pizza operators.  Some of our competitors may be better established in the markets where our restaurants are or may be located.  Within the pizza segment of the restaurant industry, we believe that our primary competitors are national pizza chains and several regional chains.  We also compete against the frozen pizza products available at grocery stores and large superstore retailers.  In recent years, several competitors have developed fast-casual pizza concepts that compete with Pie Five in certain metropolitan areas.  A change in the pricing or other market strategies of one or more of our competitors could have an adverse impact on our sales and earnings.

With respect to the sale of franchises and licenses, we compete with many franchisors of restaurants and other business concepts.  We believe that the principal competitive factors affecting the sale of franchises are product quality, price, value, consumer acceptance, franchisor experience and support, and the quality of the relationship maintained between the franchisor and its franchisees.  In general, there is also active competition for management personnel and attractive commercial real estate sites suitable for our restaurants.

ITEM 1A.
RISK FACTORS.

Not required for a smaller reporting company.

ITEM 1B.
UNRESOLVED STAFF COMMENTS.

Not applicable.

6

ITEM 2.
PROPERTIES.

The Company leases its 19,576 square foot corporate office facility with average annual lease payments of approximately $18.00 per square foot.  This lease began on January 2, 2017 and has a ten-year term. The Company amended its lease agreement in June 2020 and has elected to defer one-half of the monthly base rent for the period from June 2020 through May 2021.

As of June 26, 2022, the Company had contingent and direct lease obligations for nine additional locations.  Two of the lease obligations have been subleased and seven of the lease obligations have been assigned to franchisees. These leased properties range in size from 2,025 to 3,000 square feet, have annual rental rates ranging from approximately $30.00 to $44.00 per square foot and expire between 2023 and 2028.

ITEM 3.
LEGAL PROCEEDINGS.

The Company is subject to claims and legal actions in the ordinary course of its business.  The Company believes that all such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company’s annual results of operations, cash flows or financial condition if decided in a manner that is unfavorable to the Company.

ITEM 4.
MINE SAFETY DISCLOSURES.

Not applicable.

7

PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “RAVE”. As of September 16, 2022, there were approximately 1,891 stockholders of record of the Company’s common stock.

The Company had no sales of unregistered securities during fiscal 2022 or 2021.

The Company did not pay any dividends on its common stock during the fiscal years ended June 26, 2022 or June 27, 2021.  Any determination to pay cash dividends in the future will be at the discretion of the Company’s board of directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant.  Currently, there is no intention to pay any dividends on our common stock.

2007 Stock Purchase Plan

On May 23, 2007, the Company’s board of directors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase on our behalf of up to 1,016,000 shares of our common stock in the open market or in privately negotiated transactions.  On June 2, 2008, the Company’s board of directors amended the 2007 Stock Purchase Plan to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 2,016,000 shares. On April 22, 2009 the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 3,016,000 shares.

The following table furnishes information for purchases made pursuant to the 2007 Stock Purchase Plan during the fourth quarter of fiscal 2022:

Period

Total Number
of Shares
Purchased


Average Price
Paid Per Share


Total Number of
Shares Purchased
as Part of Publicly
Announced Plan


Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan

03/28/2022 - 04/24/2022


0


$
0



2,167,575



848,425

04/25/2022 - 05/29/2022


0



0



2,167,575



848,425

05/30/2022 - 06/26/2022


493,474



1.04



2,661,049



354,951

Total


493,474


$
1.04










On June 28, 2022, the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 5,000,000 shares to a total of 8,016,000 shares. The 2007 Stock Purchase Plan does not have an expiration date.

The Company’s ability to purchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Subsequent to June 26, 2022, the Company has repurchased 1,110,891 outstanding shares for $1.4 million and may make further purchases under the 2007 Stock Purchase Plan.  The Company may also purchase shares of our common stock other than pursuant to the 2007 Stock Purchase Plan or other publicly announced plans or programs.

Equity Compensation Plan Information

The following table furnishes information with respect to the Company’s stock option equity compensation plans as of June 26, 2022:

Plan Category

Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights


Weighted average
exercise price of
outstanding options,
warrants, and rights


Number of securities
remaining available for
future issuance under
equity compensation plans (1)

Stock option compensation plans approved by security holders


111,750


$
6.67



1,583,603

 











Stock option compensation plans not approved by security holders









Total


111,750


$
6.67



1,583,603


(1)
Securities remaining available for future issuance under the 2015 Long Term Incentive Program are net of a maximum of 1,328,531 shares of common stock issuable pursuant to outstanding restricted stock units, subject to applicable vesting requirements and performance criteria. See Note I to the audited consolidated financial statements included in this report.

ITEM 6.
Reserved

8

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K and may contain certain forward-looking statements.  See “Forward-Looking Statements.”

Overview

The Company franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express kiosks (“PIE Units”) under the trademark “Pizza Inn”.  We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors.  At June 26, 2022, Company-owned and franchised restaurants consisted of the following (in thousands, except unit data):

Fiscal Year Ended June 26, 2022
(in thousands, except unit data)

   
Pizza Inn
   
Pie Five
   
All Concepts
 
   
Ending
Units
   
Retail
Sales
   
Ending
Units
   
Retail
Sales
   
Ending
Units
   
Retail
Sales
 
                                     
Domestic Franchised/Licensed
   
128
   
$
87,977
     
31
   
$
20,311
     
159
   
$
108,288
 
Company-Owned
   
     
     
     
     
     
 
Total Domestic Units
   
128
   
$
87,977
     
31
   
$
20,311
     
159
   
$
108,288
 
                                                 
International Franchised
   
31
             
             
31
         

The domestic units were located in 18 states predominately situated in the southern half of the United States.  The international restaurants were located in seven foreign countries.

The following table summarizes domestic comparable store retail sales for the Company.

 
52 Weeks Ended

 
June 26,
2022


June 27,
2021

 
(in thousands)

 





Pizza Inn Domestic Comparable Store Retail Sales

$
83,680


$
67,097

Pie Five Domestic Comparable Store Retail Sales


19,018



16,243

Total Rave Comparable Store Retail Sales

$
102,698


$
83,340


Basic and diluted net income per common share increased $0.36 to net income of $0.45 per share for fiscal 2022 compared to a net income of $0.09 per share in the prior fiscal year.  Net income increased $6.5 million to net income of $8.0 million for fiscal 2022 compared to a net income of $1.5 million for the prior fiscal year on revenues of $10.7 million for fiscal 2022 as compared to $8.6 million in fiscal 2021.

9

Adjusted EBITDA for the fiscal year ended June 26, 2022, improved to $2.8 million compared to $2.0 million for the prior fiscal year.  The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):

   
Fiscal Year Ended
 
   
June 26,
2022
   
June 27,
2021
 
Net income
 
$
8,022
   
$
1,520
 
Interest expense
   
61
     
92
 
Income taxes
   
(5,657
)
   
(29
)
Depreciation and amortization
   
187
     
167
 
EBITDA
 
$
2,613
   
$
1,750
 
Stock compensation expense
   
169
     
80
 
Severance
   
53
     
23
 
Gain on sale of assets
   
     
(10
)
Impairment of long-lived assets and other lease charges
   
6
     
21
 
Franchisee default and closed store revenue
   
(38
)
   
(170
)
Closed and non-operating store costs
   
3
     
271
 
Adjusted EBITDA
 
$
2,806
   
$
1,965
 

Results of operations for the fiscal years 2022 and 2021 both included 52 weeks.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus (COVID-19) as a pandemic, and the disease spread rapidly throughout the United States and the world.  Federal, state and local responses to the COVID-19 pandemic, as well as our internal efforts to protect customers, franchisees and employees, severely disrupted our business operations.  Most of the domestic Pizza Inn buffet restaurants and Pie Five restaurants are in areas that were for varying periods subject to “shelter-in-place” and social distancing restrictions prohibiting in-store sales and, therefore, were limited to carry-out and/or delivery orders.  In some areas, these restrictions limited non-essential movement outside the home, which discouraged or even precluded carry-out orders. Further, the COVID-19 pandemic precipitated significant job losses and a national economic downturn that impacted the demand for restaurant food service.  Although most of our domestic restaurants continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic. In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and enhanced cleaning and disinfecting practices.

The COVID-19 pandemic has resulted in dramatically reduced aggregate in-store retail sales at Buffet Units and Pie Five Units, modestly offset by increased aggregate carry-out and delivery sales.  The decreased aggregate retail sales have correspondingly decreased supplier rebates and franchise royalties payable to the Company.

We expect that Buffet Units and Pie Five Units will continue to be subject to capacity restrictions for some time as social distancing protocols remain in place. Additionally, an outbreak or perceived outbreak of COVID-19 connected to restaurant dining could cause negative publicity directed at any of our brands and cause customers to avoid our restaurants. We cannot predict how long the pandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent off-premises dining will continue, or if individuals will be comfortable returning to our Buffet Units and Pie Five Units. Any of these changes could materially adversely affect the Company’s future financial performance.  However, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

Pizza Inn Brand Summary

The following tables summarize certain key indicators for the Pizza Inn franchised and licensed domestic restaurants that management believes are useful in evaluating performance.



52 Weeks Ended



June 26,
2022


June 27,
2021

Pizza Inn Retail Sales - Total Domestic Units

(in thousands, except unit data)

Domestic Units






Buffet Units - Franchised

$
81,546


$
63,776

Delco/Express Units - Franchised


6,198



6,053

PIE Units - Licensed


233



244

Total Domestic Retail Sales

$
87,977


$
70,073










Pizza Inn Comparable Store Retail Sales - Total Domestic

$
83,680


$
67,097










Pizza Inn Average Units Open in Period








Domestic Units








Buffet Units - Franchised


71



77

Delco/Express Units - Franchised


51



55

PIE Units - Licensed


10



12

Total Domestic Units


132



144


10

Pizza Inn total domestic retail sales increased by $17.9 million, or 25.6% compared to the prior year. The increase in domestic retail sales was primarily the result of a moderation in the impact of COVID-19. Pizza Inn domestic comparable store retail sales increased by $16.6 million, or 24.7%, for the same reason.

The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 26, 2022:



Fiscal Year Ended June 26, 2022



Beginning
Units


Opened


Concept
Change


Closed


Ending
Units

Domestic Units:















Buffet Units - Franchised


70



4



1



3



72

Delco/Express Units - Franchised


54



1



(1
)


7



47

PIE Units - Licensed


11









2



9

Total Domestic Units


135



5






12



128

 



















International Units (all types)


32



3






4



31

 



















Total Units


167



8






16



159


The net decrease of seven domestic units was primarily due to declines in Delco and PIE units. We believe that this trend of net domestic store closures is moderating and will reverse in future periods. The net decrease of one international Pizza Inn unit was primarily due to closure of locations in Kuwait partially offset by new units in the Middle East. We believe that this represents a stabilizing of international unit count.

Pie Five Brand Summary

The following tables summarize certain key indicators for the Pie Five franchised and Company-owned restaurants that management believes are useful in evaluating performance.



52 Weeks Ended



June 26,
2022


June 27,
2021



(in thousands, except unit data)

Pie Five Retail Sales - Total Units






Domestic Units - Franchised

$
20,311


$
17,734

Domestic Units - Company-owned






Total Domestic Retail Sales

$
20,311


$
17,734










Pie Five Comparable Store Retail Sales - Total

$
19,018


$
16,243










Pie Five Average Units Open in Period








Domestic Units - Franchised


32



37

Domestic Units - Company-owned






Total Domestic Units


32



37


Pie Five domestic total retail sales increased $2.6 million, or 14.5%, compared to the prior year despite average units open in the period decreasing to 32 from 37 the prior year.  Comparable store retail sales increased by $2.8 million, or 17.1% during fiscal 2022 compared to the prior year. The improvement in both total retail sales and comparable store retail sales was primarily the result of a moderation in the impact of COVID-19.

11

The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 26, 2022:



Fiscal Year Ended June 26, 2022



Beginning
Units


Opened


Closed


Ending
Units














Domestic - Franchised


33



2



4



31

Domestic - Company-owned












Total Domestic Units


33



2



4



31


The net decrease of two Pie Five units during fiscal 2022 was primarily the result of the closure of poor-performing units, which we believe provides us a stronger foundation for future brand growth.  We believe that this trend of net store closures will moderate and then reverse in future periods.

Pie Five - Company-Owned Restaurants

Fiscal Year Ended

(in thousands, except store weeks and average data)

June 26,
2022


June 27,
2021

Loss from continuing operations before taxes


(3
)


(292
)
Impairment, other lease charges and non-operating store costs


3



291

Restaurant operating cash flow





(1
)

We closed our single remaining Company-owned Pie Five restaurant during the third quarter of fiscal 2020.

Loss from continuing operations before taxes for Company-owned Pie Five stores decreased to $0.3 million for the fiscal year ended June 26, 2022 compared to the same period of the prior year primarily due to the closure of all remaining Company-owned restaurants.  Operating cash flow from Company-owned Pie Five restaurants remained essentially flat in fiscal 2022.

Non-GAAP Financial Measures and Other Terms

The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.

We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe that Adjusted EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. We believe that restaurant operating cash flow is a useful metric to investors in evaluating the ongoing operating performance of Company-owned restaurants and comparing such store operating performance from period to period. Management also uses these non-GAAP financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.

The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have the meaning and are calculated as follows:


“EBITDA” represents earnings before interest, taxes, depreciation and amortization.

“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock compensation expense, severance, gain/loss on sale of assets, costs related to impairment and other lease charges, franchisee default and closed store revenue/expense, and closed and non-operating store costs.

“Retail sales” represents the restaurant sales reported by our franchisees and Company-owned restaurants, which may be segmented by brand or domestic/international locations.

“Comparable store retail sales” includes the retail sales for restaurants that have been open for at least 18 months as of the end of the reporting period. The sales results for a restaurant that was closed temporarily for remodeling or relocation within the same trade area are included in the calculation only for the days that the restaurant was open in both periods being compared.

“Store weeks” represent the total number of full weeks that specified restaurants were open during the period.

“Average units open” reflects the number of restaurants open during a reporting period weighted by the percentage of the weeks in a reporting period that each restaurant was open.

“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks) divided by store weeks in the period.

“Restaurant operating cash flow” represents the pre-tax income earned by Company-owned restaurants before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) impairment and other lease charges, and (4) non-operating store costs.

“Non-operating store costs” represent gain or loss on asset disposal, store closure expenses, lease termination expenses and expenses related to abandoned store sites.

“Franchisee default and closed store revenue/expense” represents the net of accelerated revenues and costs attributable to defaulted area development agreements and closed franchised stores.

12

Financial Results

The Company defines its operating segments as Pizza Inn Franchising, Pie Five Franchising and Company-Owned Restaurants. The following is additional business segment information for the Fiscal Years ended June 26, 2022 and June 27, 2021 (in thousands):

   
Pizza Inn
Franchising
   
Pie Five
Franchising
   
Company-Owned
Stores
   
Corporate
   
Total
 
   
Fiscal Year Ended
   
Fiscal Year Ended
   
Fiscal Year Ended
   
Fiscal Year Ended
   
Fiscal Year Ended
 
   
June 26,
2022
   
June 27,
2021
   
June 26,
2022
   
June 27,
2021
   
June 26,
2022
   
June 27,
2021
   
June 26,
2022
   
June 27,
2021
   
June 26,
2022
   
June 27,
2021
 
REVENUES:
                                                           
Franchise and license revenues
 
$
8,535
   
$
6,582
   
$
1,950
   
$
1,800
   
$
   
$
   
$
   
$
   
$
10,485
   
$
8,382
 
Restaurant sales
   
     
     
     
     
     
     
     
     
     
 
Rental income
   
     
     
     
     
     
     
186
     
200
     
186
     
200
 
Interest income and other
   
     
     
17
     
16
     
     
     
4
     
(5
)
   
21
     
11
 
Total revenues
   
8,535
     
6,582
     
1,967
     
1,816
     
     
     
190
     
195
     
10,692
     
8,593
 
                                                                                 
COSTS AND EXPENSES:
                                                                               
Cost of sales
   
     
     
     
     
1
     
264
     
     
     
1
     
264
 
General and administrative expenses
   
     
     
     
     
2
     
7
     
5,444
     
4,703
     
5,446
     
4,710
 
Franchise expenses
   
2,313
     
1,377
     
971
     
1,017
     
     
     
     
     
3,284
     
2,394
 
Gain on sale of assets
   
     
     
     
     
     
     
     
(10
)
   
     
(10
)
Impairment of long-lived assets
                                                                               
 and other lease charges
   
     
     
     
     
     
21
     
6
     
     
6
     
21
 
Bad debt expense
   
     
     
     
     
     
     
46
     
121
     
46
     
121
 
Interest expense
   
     
     
     
     
     
     
61
     
92
     
61
     
92
 
Amortization and depreciation expense
   
     
     
     
     
     
     
187
     
167
     
187
     
167
 
Total costs and expenses
   
2,313
     
1,377
     
971
     
1,017
     
3
     
292
     
5,744
     
5,073
     
9,031
     
7,759
 
                                                                                 
OTHER INCOME:
                                                                               
Gain on forgiveness of PPP loan
   
     
     
     
     
     
     
     
657
     
     
657
 
Employee retention credit
   
     
     
     
     
     
     
704
     
     
704
     
 
Total other income
   
     
     
     
     
     
     
704
     
657
     
704
     
657
 
INCOME/(LOSS) BEFORE TAXES
 
$
6,222
   
$
5,205
   
$
996
   
$
799
   
$
(3
)
 
$
(292
)
 
$
(4,850
)
 
$
(4,221
)
 
$
2,365
   
$
1,491
 

Revenues:

Revenues are derived from franchise royalties, franchise fees and supplier and distributer incentives, advertising funds, area development exclusivity fees and foreign master license fees, supplier convention funds, sublease rental income, interest and other income, and sales by Company-owned restaurants. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors. Total revenues for fiscal 2022 and fiscal 2021 were $10.7 million and $8.6 million, respectively.

Pizza Inn Franchise and License Revenues

Pizza Inn franchise revenues increased by $1.9 million to $8.5 million in fiscal 2022 compared to $6.6 million in fiscal 2021. The 29.7% increase was primarily the result of a moderation in the impact of COVID-19.

13

Pie Five Franchise and License Revenues

Pie Five franchise revenues increased by $0.2 million to $2.0 million for fiscal 2022 compared to $1.8 million for fiscal 2021. The 8.3% increase was primarily the result of a moderation in the impact of COVID-19.

Restaurant Sales

We had no restaurant sales, which consist of revenue generated by Company-owned restaurants, in fiscal 2022 or fiscal 2021 because we closed our single remaining Company-owned restaurant during the third quarter of fiscal 2020.

Costs and Expenses:

Cost of Sales

Cost of sales primarily includes food and supply costs, labor costs, and lease costs directly related to Company-owned restaurant sales. These costs decreased to $1 thousand for fiscal 2022 compared to $264 thousand in fiscal 2021. The decrease was primarily the result of the closure of the remaining Company-owned stores during the third quarter of fiscal 2020 partially offset by ongoing lease costs directly related to closed Company-owned stores.

General and Administrative Expenses

Total general and administrative expenses increased to $5.4 million for fiscal 2022 compared to $4.7 million in the prior fiscal year. The $0.7 million, or 15.6%, increase in total general and administrative expenses was primarily the result of increased employment, legal, and travel expenses.

Franchise Expenses

Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises.  Total franchise expenses increased $0.9 million to $3.3 million in fiscal 2022 from $2.4 million in the prior fiscal year. Pizza Inn franchise expenses increased $0.9 million to $2.3 million in fiscal 2022 compared to $1.4 million in the prior fiscal year primarily as a result of an increase in payroll and related, advertising, and travel costs. Pie Five franchise expenses of $1.0 million in fiscal 2022 remained essentially unchanged from the prior year.

Gain on Sale of Assets

The Company’s gain on sale of assets reflects the net difference between the sale price of assets and the net carrying value of the assets at the time of sale.  Gain on sale of assets decreased to zero in fiscal 2022 compared to $10 thousand in the prior year.

Impairment Expenses

Impairment of long-lived assets and other lease charges were $6 thousand for fiscal 2022 compared to $21 thousand for fiscal 2021. Impairment of long-lived assets and other lease charges for Company-owned restaurants was zero in fiscal 2022 compared to $21 thousand in fiscal 2021 primarily due to a reduction in lease charges for closed stores.

Bad Debt Expense

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. Bad debt expense decreased by $75 thousand to $46 thousand in fiscal 2022 compared to $121 thousand in fiscal 2021 primarily related to domestic accounts receivable.

Interest Expense

Interest expense decreased $31 thousand for fiscal 2022 to $61 thousand compared to $92 thousand in the prior year.

Amortization and Depreciation Expense

Amortization and depreciation expense increased $20 thousand to $187 thousand in fiscal 2022 compared to $167 thousand in fiscal 2021 primarily as a result of higher amortization of equipment.

14

Other Income

Other income represents non-recurring income that is not derived from the operations of the Company.  The Company had a $0.7 million refundable employee retention tax credit during fiscal 2022 compared to $0.7 million in loan forgiveness during fiscal 2021, both of which were the result of governmental actions to mitigate the economic impacts of the COVID-19 pandemic. (See, “Liquidity and Capital Resources – Employee Retention Credit” and “- PPP Loan,” below.)  Management does not presently expect similar benefits to be available in subsequent periods.

Provision for Income Tax

For the year ended June 26, 2022, the Company recorded an income tax benefit of $5.7 million including federal deferred tax benefit of $5.5 million and current/deferred state tax benefit of $0.2 million. As of June 26, 2022, the Company had net operating loss carryforwards totaling $23.1 million that are available to reduce future taxable income and will begin to expire in 2032, of which $1.8 million are limited to 80% and do not expire.

Tax returns for fiscal 2013 and after will remain open to examination by federal and state tax authorities for three to four years following the tax year in which net operating losses or tax credits are utilized. The Company was not subject to income tax examinations by any tax authority as of June 26, 2022.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance. The Company has reversed the full amount of the valuation allowance as of June 26, 2022. The reversal of the valuation allowance resulted in a tax benefit of $5.7 million in fiscal 2022 compared to a negligible tax benefit in fiscal 2021.

There are no material uncertain tax positions. Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on the tax returns would be sustained upon examination.

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of liquidity are cash flows from operating activities, loan proceeds, and proceeds from the sale of securities.

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, share based compensation, and changes in working capital.  Cash provided by operations was $1.4 million in fiscal 2022 compared to cash provided by operations of $1.5 million in fiscal year 2021.

Cash flows from investing activities primarily reflect net proceeds from sale of assets and capital expenditures for the purchase of Company assets. Cash provided by investing activities was $0.3 million in fiscal 2022 compared to cash used by investing activities of $0.2 million in fiscal 2021. The $0.5 million increase in cash provided by investing activities was primarily the result of payments on notes receivable from prior sales of assets.

Cash flows from financing activities generally reflect changes in the Company’s borrowings and securities activity during the period.  Net cash used by financing activities was $2.3 million for the fiscal year ended June 26, 2022 compared to net cash provided by financing activities of $3.9 million for the fiscal year June 27, 2021. The cash used by financing activities in fiscal 2022 was primarily the result of $1.6 million used to retire all outstanding convertible notes, as well as $0.5 million used to repurchase shares of the Company’s common stock and $0.2 million used to repay a short term loan.  The cash provided by financing activities in fiscal 2021 was primarily attributable to proceeds from sales of stock in an at-the-market offering.

PPP Loan Forgiveness and Employee Retention Credit

On April 13, 2020, the Company received the proceeds from a loan in the amount of $0.7 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A. (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The PPP Loan was unsecured by the Company and was guaranteed by the SBA. We applied for and received a forgiveness decision in the fourth quarter of fiscal 2021, such that all of the PPP Loan was forgiven at that time.

15

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law.  The CAA expanded eligibility for an employee retention credit for companies impacted by the COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees.  This payroll tax credit was a refundable tax credit against certain federal employment taxes. For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit.  The Company has also benefitted from the CAA guidance to treat expenses associated with the PPP loan forgiveness as tax deductible.

ATM Offering

On December 5, 2017, the Company entered into an At Market Issuance Sales Agreement with B. Riley FBR, Inc. (“B. Riley FBR”) pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $5.0 million from time to time through B. Riley FBR acting as agent (the “2017 ATM Offering”).  The 2017 ATM Offering was undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which was declared effective by the SEC on November 6, 2017. Through June 27, 2021, the Company had sold an aggregate of 3,064,342 shares in the 2017 ATM Offering, realizing aggregate gross proceeds of $4.4 million. The 2017 ATM Offering expired on November 6, 2020.

Convertible Notes

On March 3, 2017, the Company completed a registered shareholder rights offering of its 4% Convertible Senior Notes Due 2022 (“Notes”).  Shareholders exercised subscription rights to purchase all 30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.

The Notes bore interest at the rate of 4% per annum on the principal or par value of $100 per note, payable annually in arrears on February 15 of each year, commencing February 15, 2018.  Interest was payable in cash or, at the Company’s discretion, in shares of Company common stock.  The Notes were secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries. During the fiscal year ended June 26, 2022, no Notes were converted to common shares. The Notes matured on February 15, 2022, at which time all principal and unpaid interest was paid in cash. Therefore, as of June 26, 2022, there were no Notes outstanding.

Liquidity

We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily from cash on hand and operating cash flow.  Based on budgeted and year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 2023 fiscal year and beyond.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities.  The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances.  Estimates and assumptions are reviewed periodically.  Actual results could differ materially from estimates.

The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and therefore require subjective judgments.  Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.

Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The Company records a provision for doubtful receivables to allow for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from the Company’s estimates.

The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value. If impairment is indicated, the carrying value of an impaired asset is reduced to its fair value, based on discounted estimated future cash flows. The Company recognized pre-tax, non-cash impairment charges of $6 thousand and $21 thousand during fiscal years 2022 and 2021, respectively. The Company had $0.2 million in sublease income during fiscal year 2022. The Company had lease charges related to closed units of $0.7 million partially offset by $0.2 million in sublease income during fiscal year 2021.

16

Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight is given to evidence that can be objectively verified, including recent losses. Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance. Based on this analysis, the Company reversed the full amount of the previous valuation allowance as of June 26, 2022.

The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return.  ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of June 26, 2022 and June 27, 2021, the Company had no uncertain tax positions.

The Company assesses its exposures to loss contingencies from legal matters based upon factors such as the current status of the cases and consultations with external counsel and provides for the exposure by accruing an amount if it is judged to be probable and can be reasonably estimated. If the actual loss from a contingency differs from management’s estimate, operating results could be adversely impacted.

Leases

The Company determines if an arrangement is a lease at inception of the arrangement. To the extent that it can be determined that an arrangement represents a lease, it is classified as either an operating lease or a finance lease. The Company does not currently have any finance leases. The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right of use asset and a corresponding lease liability. Right of use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Short-term leases that have an initial term of one year or less are not capitalized. The Company does not presently have any short-term leases.

Operating lease right of use assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to the present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Nature of Leases

The Company leases certain office space, restaurant space, and information technology equipment under non-cancelable leases to support its operations. A more detailed description of significant lease types is included below.

Office Agreements

The Company rents office space from third parties for its corporate location. Office agreements are typically structured with non-cancelable terms of one to 10 years. The Company has concluded that its office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreements subsequent to the primary term.

Restaurant Space Agreements

The Company rents restaurant space from third parties for its Company-owned restaurants. Restaurant space agreements are typically structured with non-cancelable terms of one to 10 years. The Company has concluded that its restaurant agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreements subsequent to the primary term.

17

The Company also subleases some of its restaurant space to third parties. The Company’s two subleases have terms that end in 2023 and 2025. The sublease agreements are noncancelable through the end of the term and both parties have substantive rights to terminate the lease when the term is complete. Sublease agreements are not capitalized and are recorded as rental income in the period that rent is received.

As of June 26, 2022, the Company had no Company-owned restaurants.

Information Technology Equipment

The Company rents information technology equipment, primarily printers and copiers, from a third party for its corporate office location. Information technology equipment agreements are typically structured with non-cancelable terms of one to five years. The Company has concluded that its information technology equipment commitments are operating leases.

Discount Rate

Leases typically do not provide an implicit rate. Accordingly, the Company is required to use an incremental borrowing rate in determining the present value of lease payments based on the information available at commencement date. The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company uses the implicit rate in the limited circumstances in which that rate is readily determinable.

Lease Guarantees

The Company has guaranteed the financial responsibilities of certain franchised store leases. These guaranteed leases are not considered operating leases because the Company does not have the right to control the underlying asset. If the franchisee abandons the lease and fails to meet the lease’s financial obligations, the lessor may assign the lease to the Company for the remainder of the term. If the Company does not expect to assign the abandoned lease to a new franchisee within 12 months, the lease will be considered an operating lease and a right-of-use asset and lease liability will be recognized.

Practical Expedients and Accounting Policy Elections

Certain lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, the Company has utilized the practical expedient that exempts it from separating lease components from non-lease components. Accordingly, the Company accounts for the lease and non-lease components in an arrangement as a single lease component.

In addition, for all existing asset classes, the Company has made an accounting policy election not to apply the lease recognition requirements to short-term leases (that is, a lease that, at commencement, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise). Accordingly, we recognize lease payments related to our short-term leases in our income statements on a straight-line basis over the lease term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those payments in our income statements in the period in which the obligation for those payments is incurred.

The components of total lease expense for the fiscal year ended June 26, 2022, the majority of which is included in general and administrative expense, are as follows (in thousands):



Fiscal Year Ended
June 26, 2022

Operating lease cost

$
498

Sublease income


(186
)
Total lease expense, net of sublease income

$
312


Supplemental cash flow information related to operating leases is included in the table below (in thousands):



Fiscal Year Ended
June 26, 2022

Cash paid for amounts included in the measurement of lease liabilities

$
551


18

Supplemental balance sheet information related to operating leases is included in the table below (in thousands):



Fiscal Year Ended
June 26, 2022

Operating lease right of use assets, net

$
1,664

Operating lease liabilities, current


490

Operating lease liabilities, net of current portion


1,421


Weighted average remaining lease term and weighted average discount rate for operating leases are as follows:



Fiscal Year Ended
June 26, 2022

Weighted average remaining lease term

3.1 Years

Weighted average discount rate


4.0
%

Operating lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands):



Operating Leases

2023

$
558

2024


511

2025


433

2026


382

Thereafter


191

Total operating lease payments

$
2,075

Less: imputed interest


(164
)
Total operating lease liability

$
1,911


ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for a smaller reporting company.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See information set forth on Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.

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

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were effective in assuring that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934).  Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has conducted an evaluation of the effectiveness of its internal control over financial reporting. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based upon that evaluation, management has concluded that our internal control over financial reporting was effective as of June 26, 2022.

19

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

ITEM 11.
EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

20

PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


1.
The financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.


2.
Any financial statement schedule filed as part of this report is listed in the Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.


3.
Exhibits:

Amended and Restated Articles of Incorporation of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed January 8, 2015).


Amended and Restated Bylaws of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed January 8, 2015).


Description of Registrant’s Securities. (filed as Exhibit 4.4 to Form 10-K for the fiscal year ended June 27, 2021 and incorporated herein by reference).


2015 Long Term Incentive Plan of the Company (filed as Exhibit 10.1 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*


Form of Stock Option Grant Agreement under the Company’s 2015 Long Term Incentive Plan (filed as Exhibit 10.2 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*


Form of Restricted Stock Unit Award Agreement under the Company’s 2015 Long-Term Incentive Plan (filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended December 27, 2015 and incorporated herein by reference).*


Lease Agreement dated November 1, 2016, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.4 to Form 10-K for the year ended June 30, 2019 and incorporated herein by reference).*


First Amendment to Lease and Expansion dated July 1, 2017, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.5 to Form 10-K for the year ended June 30, 2019 and incorporated herein by reference).*


Second Amendment to Lease Agreement effective June 1, 2020, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.6 to Form 10-K for the fiscal year ended June 27, 2021 and incorporated herein by reference).


Letter agreement dated October 18, 2019, between Rave Restaurant Group, Inc. and Brandon Solano (filed as Exhibit 10.1 to Form 8-K filed October 21, 2019 and incorporated herein by reference).*


Letter agreement dated November 4, 2019, between Rave Restaurant Group, Inc. and Mike Burns (filed as Exhibit 10.1 to Form 8-K filed November 15, 2019 and incorporated herein by reference).*


Letter agreement dated June 16, 2021, between Rave Restaurant Group, Inc. and Clinton Fendley (filed as Exhibit 10.1 to Form 8-K filed June 17, 2021 and incorporated herein by reference).*


List of Subsidiaries (filed as Exhibit 21.1 to Form 10-K filed September 30, 2019 and incorporated herin by reference).*


Consent of Independent Registered Public Accounting Firm.


Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.


Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.


Section 1350 Certification of Principal Executive Officer.


Section 1350 Certification of Principal Financial Officer.


101
Interactive data files pursuant to Rule 405 of Regulation S-T.

*Management contract or compensatory plan or agreement.

21

ITEM 16.
FORM 10-K SUMMARY.

None.

22

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.


Rave Restaurant Group, Inc.
Date: September 23, 2022
By: /s/ Brandon L. Solano

Brandon L. Solano

Chief Executive Officer

(principal executive officer)



By: /s/ Clinton D. Fendley

Clinton D. Fendley

Chief Financial Officer

(principal financial officer)

23

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

Name and Position

Date

/s/ Brandon L. Solano



Brandon L. Solano



Chief Executive Officer



(principal executive officer)

September 23, 2022





/s/ Clinton D. Fendley


Clinton D. Fendley


Chief Financial Officer


(principal financial officer)

September 23, 2022





/s/ Mark E. Schwarz



Mark E. Schwarz



Director and Chairman of the Board

September 23, 2022





/s/ Robert B. Page



Robert B. Page



Director

September 23, 2022





/s/ William C. Hammett, Jr.



William C. Hammett, Jr.



Director

September 23, 2022





/s/ Clinton J. Coleman



Clinton J. Coleman



Director

September 23, 2022


24

RAVE RESTAURANT GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Description
Page No.
   
F-2
   
F-3
   
F-4
   
F-5
   
F-6
   
F-6
   
F-7

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Rave Restaurant Group, Inc.
The Colony, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Rave Restaurant Group, Inc. (the “Company”) and subsidiaries as of June 26, 2022 and June 27, 2021, the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 26, 2022 and June 27, 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audits provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.  The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition — Refer to Note A to the Financial Statements

Critical Audit Matter Description

The Company has two primary sources of revenues: restaurant sales and franchise revenues. Franchise revenues consist of 1) franchise royalties, 2) supplier and distributor incentive revenues, 3) franchise license fees, 4) area development exclusivity fees and foreign master license fees, 5) advertising funds, and 6) supplier convention funds. Each of these sources of revenues have different contract types, lengths, terms, and conditions. As such, revenue recognition requires significant analysis and a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s revenue recognition included the following:


We obtained the detail of all revenue transactions and performed the following procedures:
 

o
Identified the Company’s various revenue streams and any differences in the processes, methods, and policies applicable to each revenue stream.


o
Reviewed the entity’s revenue recognition policies and evaluated whether following those policies comply with the requirements of ASC 606.
 

o
Obtained a listing of franchise revenue related contracts, agreements, and invoices during the year, sampled the detail, and tested revenues by examining and documenting supporting contracts, invoices, and other documentation to determine whether revenue was recognized at the proper amount.


o
Performed various cutoff procedures to ensure revenue was recognized in the proper period.

Armanino LLP
Dallas, Texas

We have served as the Company’s auditor since 2020.

September 23, 2022

F-2

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

   
Fiscal Year Ended
 
   
June 26,
2022
   
June 27,
2021
 
             
             
REVENUES:
 
$
10,692
   
$
8,593
 
                 
COSTS AND EXPENSES:
               
Cost of sales
   
1
     
264
 
General and administrative expenses
   
5,446
     
4,710
 
Franchise expenses
   
3,284
     
2,394
 
Gain on sale of assets
   
     
(10
)
Impairment of long-lived assets and other lease charges
   
6
     
21
 
Bad debt expense
   
46
     
121
 
Interest expense
   
61
     
92
 
Depreciation and amortization expense
   
187
     
167
 
Total costs and expenses
   
9,031
     
7,759
 
                 
OTHER INCOME:
               
Gain on forgiveness of PPP loan
   
     
657
Employee retention credit
    704      
Total other income
   
704
   
657
                 
INCOME BEFORE TAXES
   
2,365
     
1,491
 
Income tax benefit
   
5,657
   
29
NET INCOME
 
$
8,022
   
$
1,520
 
                 
INCOME PER SHARE OF COMMON STOCK - BASIC:
 
$
0.45
   
$
0.09
 
                 
INCOME PER SHARE OF COMMON STOCK - DILUTED:
 
$
0.45
   
$
0.09
 
                 
Weighted average common shares outstanding - basic
   
17,993
     
17,307
 
                 
Weighted average common and potential dilutive common shares outstanding
   
17,993
     
18,105
 

See accompanying Notes to Consolidated Financial Statements.

F-3

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

   
June 26,
2022
   
June 27,
2021
 
ASSETS
           
             
CURRENT ASSETS
           
Cash and cash equivalents
 
$
7,723
   
$
8,330
 
Accounts receivable, less allowance for bad debts of $27 and $47, respectively
   
1,981
     
911
 
Notes receivable, current
   
172
     
901
 
Deferred contract charges, current
   
36
     
35
 
Prepaid expenses and other current assets
   
146
     
196
 
Total current assets
   
10,058
     
10,373
 
                 
LONG-TERM ASSETS
               
Property, plant and equipment, net
   
365
     
445
 
Operating lease right of use asset, net
   
1,664
     
2,085
 
Intangible assets definite-lived, net
   
232
     
183
 
Notes receivable, net of current portion
   
201
     
52
 
Deferred tax asset, net
    5,772        
Deferred contract charges, net of current portion
   
224
     
207
 
Total assets
 
$
18,516
   
$
13,345
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Accounts payable - trade
 
$
669
   
$
644
 
Accrued expenses
   
1,082
     
924
 
Other current liabilities
   
81
     
46
 
Operating lease liability, current
   
490
     
465
 
Short term loan
   
30
     
250
 
Convertible notes short term, net of unamortized debt issuance costs and discounts
   
     
1,576
 
Deferred revenues, current
   
538
     
626
 
Total current liabilities
   
2,890
     
4,531
 
                 
LONG-TERM LIABILITIES
               
Operating lease liability, net of current portion
   
1,421
     
1,911
 
Deferred revenues, net of current portion
   
793
     
1,170
 
Total liabilities
   
5,104
     
7,612
 
                 
COMMITMENTS AND CONTINGENCIES (SEE NOTE K)
           
                 
SHAREHOLDERS’ EQUITY
               
Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,090,058 and 25,090,058  shares, respectively; outstanding 17,511,430 and 18,004,904 shares, respectively
   
251
     
251
 
Additional paid-in capital
   
37,384
     
37,215
 
Retained earnings/(accumulated deficit)
   
826
     
(7,196
)
Treasury stock at cost
               
Shares in treasury: 7,578,628 and 7,085,154, respectively
   
(25,049
)
   
(24,537
)
Total shareholders’ equity
   
13,412
     
5,733
 
                 
Total liabilities and shareholders’ equity
 
$
18,516
   
$
13,345
 

See accompanying Notes to Consolidated Financial Statements.

F-4

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)

   
Common Stock
   
Additional
Paid-in
   
Accumulated
Earnings
   
Treasury Stock
       
   
Shares
   
Amount
   
Capital
   
(Deficit)
   
Shares
   
Amount
   
Total
 
                                           
Balance, June 28, 2020
   
22,550
   
$
225
   
$
33,531
   
$
(8,716
)
   
(7,085
)
 
$
(24,537
)
 
$
503
 
                                                         
Stock compensation expense
   
     
     
80
   
     
     
     
80
Issuance of common stock
   
2,540
     
26
     
3,735
     
     
     
     
3,761
 
Equity issuance costs - ATM offering
   
     
     
(131
)
   
     
     
     
(131
)
Net income
   
     
     
     
1,520
   
     
     
1,520
Balance, June 27, 2021
   
25,090
   
$
251
   
$
37,215
   
$
(7,196
)
   
(7,085
)
 
$
(24,537
)
 
$
5,733
 

   
Common Stock
   
Additional
Paid-in
   
Retained
Earnings/
(Accumulated
   
Treasury Stock
       
   
Shares
   
Amount
   
Capital
   
Deficit)
   
Shares
   
Amount
   
Total
 
Balance, June 27, 2021
   
25,090
   
$
251
   
$
37,215
   
$
(7,196
)
   
(7,085
)
 
$
(24,537
)
 
$
5,733
 
                                                         
Stock compensation expense
   
     
     
169
     
     
     
     
169
 
Purchase of treasury stock
   

     
     
     
     
(494
)
   
(512
)
   
(512
)
Net income
   
     
     
     
8,022
     
     
     
8,022
 
Balance, June 26, 2022
   
25,090
   
$
251
   
$
37,384
   
$
826
     
(7,579
)
 
$
(25,049
)
 
$
13,412
 

See accompanying Notes to Consolidated Financial Statements.

F-5

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

   
Fiscal Year Ended
 
   
June 26,
2022
   
June 27,
2021
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
    Net income
 
$
8,022
   
$
1,520
 
Adjustments to reconcile net income to cash provided by/ operating activities:
               
Impairment of long-lived assets and other lease charges
   
6
     
21
 
Stock compensation expense
   
169
     
80
 
Depreciation and amortization
   
140
     
131
 
Amortization of operating right of use assets
   
421
     
569
 
Amortization of intangible assets definite-lived
   
47
     
36
 
Amortization of debt issue costs
   
21
     
27
 
Gain on the sale of assets
   
     
(10
)
Allowance for bad debts
   
46
     
7
 
Bad debt on notes receivable
   
     
114
 
Gain on forgiveness of PPP loan
   
     
(657
)
Deferred tax asset, net
   
(5,772
)
   
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(1,116
)
   
47
 
Notes receivable
   
80
     
(119
)
Deferred contract charges
   
(18
)
   
33
 
Prepaid expenses and other current assets
   
50
     
(22
)
Deposits and other
   
     
5
 
Accounts payable - trade
   
25
     
198
 
Accounts payable - lease termination impairments
   
     
(428
)
Accrued expenses
   
158
     
149
 
Other current liabilities
   
35
     
46
 
Operating lease liability
   
(465
)
   
(793
)
Deferred revenues
   
(465
)
   
582
 
Other long-term liabilities
   
     
(51
)
           Cash provided by operating activities
 
$
1,384
   
$
1,485
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Payments received on notes receivable
   
500
     
47
 
Proceeds from sale of assets
   
     
1
 
Purchases of intangible assets definite-lived
   
(96
)
   
(74
)
Purchases of property, plant and equipment
   
(66
)
   
(212
)
Cash provided by/(used in) investing activities
   
338
     
(238
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Purchase of treasury stock
    (512 )      
Proceeds from issuance of common stock
   
     
3,761
 
Equity issuance costs - ATM offering
   
     
(131
)
Payment of convertible notes
    (1,597 )    
 
Payment of short term loan
   
(220
)
   
250
 
      Cash (used in)/provided by financing activities
   
(2,329
)
   
3,880
 
                 
Net (decrease)/increase in cash and cash equivalents
   
(607
)