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

FORM 10-Q

(Mark One)



Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 24, 2023 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)

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

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 definitions 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑

As of January 25, 2024, 14,586,566 shares of the issuer’s common stock were outstanding.



RAVE RESTAURANT GROUP, INC.
Index

PART I. FINANCIAL INFORMATION
 
       
Item 1.
 
Financial Statements
Page
       
   
3
       
   
4
       
   
5
       
   
6
       
   
7
       
Item 2.
 
13
       
Item 3.
 
21
       
Item 4.
 
21
       
PART II. OTHER INFORMATION
       
Item 1.
 
23
       
Item 1A.
 
23
       
Item 2.
 
23
       
Item 3.
 
23
       
Item 4.
 
23
       
Item 5.
 
23
       
Item 6.
 
24
       
   
25

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

   
Three Months Ended
   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
   
December 24,
2023
   
December 25,
2022
 
REVENUES:
 
$
2,792
   
$
2,866
   
$
5,881
   
$
5,871
 
                                 
COSTS AND EXPENSES:
                               
General and administrative expenses
   
1,341
     
1,453
     
2,660
     
2,796
 
Franchise expenses
   
844
     
867
     
2,016
     
2,069
 
Impairment of long-lived assets and other lease charges
   
     
     
     
5
 
Bad debt expense
   
10
     
5
     
35
     
9
 
Interest expense
   
     
     
     
1
 
Depreciation and amortization expense
   
57
     
53
     
112
     
104
 
Total costs and expenses
   
2,252
     
2,378
     
4,823
     
4,984
 
                                 
INCOME BEFORE TAXES
   
540
     
488
     
1,058
     
887
 
Income tax benefit (expense)
   
13
   
(140
)
   
(119
)
   
(232
)
NET INCOME
  $
553
    $
348
    $
939
    $
655
 
                                 
INCOME PER SHARE OF COMMON STOCK - BASIC:
 
$
0.04
   
$
0.02
   
$
0.07
   
$
0.04
 
                                 
INCOME PER SHARE OF COMMON STOCK - DILUTED:
 
$
0.04
   
$
0.02
   
$
0.07
   
$
0.04
 
                                 
Weighted average common shares outstanding - basic
   
14,444
     
16,351
     
14,299
     
16,491
 
                                 
Weighted average common shares outstanding - diluted
   
14,465
     
16,351
     
14,319
     
16,491
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

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

   
December 24,
2023
   
June 25,
2023
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
5,306
   
$
5,328
 
Accounts receivable, less allowance for bad debts of $23 and $58, respectively
   
1,193
     
1,145
 
Notes receivable, current
   
82
     
105
 
Assets held for sale
    37       19  
Deferred contract charges, current
   
30
     
33
 
Prepaid expenses and other current assets
   
458
     
204
 
Total current assets
   
7,106
     
6,834
 
                 
LONG-TERM ASSETS
               
Property and equipment, net
   
208
     
258
 
Operating lease right of use assets, net
   
1,008
     
1,227
 
Intangible assets definite-lived, net
   
294
     
328
 
Notes receivable, net of current portion
   
61
     
28
 
Deferred tax asset, net
    5,271       5,342  
Deferred contract charges, net of current portion
   
212
     
220
 
Total assets
 
$
14,160
   
$
14,237
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES
               
Accounts payable - trade
 
$
653
   
$
502
 
Accrued expenses
    449       891  
Operating lease liabilities, current
   
432
     
463
 
Deferred revenues, current
   
163
     
342
 
Total current liabilities
   
1,697
     
2,198
 
                 
LONG-TERM LIABILITIES
               
Operating lease liabilities, net of current portion
   
740
     
958
 
Deferred revenues, net of current portion
   
622
     
690
 
Total liabilities
   
3,059
     
3,846
 
                 
COMMITMENTS AND CONTINGENCIES (SEE NOTE C)
           
                 
SHAREHOLDERS’ EQUITY
               
Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,522,171 and 25,090,058 shares, respectively; outstanding 14,586,566 and 14,154,453 shares, respectively
   
255
     
251
 
Additional paid-in capital
   
37,496
     
37,729
 
Retained earnings
   
3,378
     
2,439
 
Treasury stock, at cost
               
Shares in treasury: 10,935,605 and 10,935,605 respectively
   
(30,028
)
   
(30,028
)
Total shareholders’ equity
   
11,101
     
10,391
 
                 
Total liabilities and shareholders’ equity
 
$
14,160
   
$
14,237
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4

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

   
Common Stock
               
Treasury Stock
       
   
Shares
   
Amount
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Shares
   
Amount
   
Total
 
Balance, June 26, 2022
   
25,090
   
$
251
   
$
37,384
   
$
826
     
(7,579
)
 
$
(25,049
)
 
$
13,412
 
                                                         
Stock-based compensation expense
   
     
      86      
     
            86  
Purchase of treasury stock
                            (1,111 )     (1,384 )     (1,384 )
Net income
   
     
     
     
307
     
     
     
307
 
Balance, September 25, 2022
   
25,090
   
$
251
   
$
37,470
   
$
1,133
     
(8,690
)
 
$
(26,433
)
 
$
12,421
 
                                                         
Stock-based compensation expense
   
            87            
            87  
Purchase of treasury stock
                            (2,246 )     (3,595 )     (3,595 )
Net income
   
     
     
     
348
     
     
     
348
 
Balance, December 25, 2022
   
25,090
    $
251
    $
37,557
    $
1,481
     
(10,936
)
  $
(30,028
)
  $
9,261
 

   
Common Stock
               
Treasury Stock
       
   
Shares
   
Amount
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Shares
   
Amount
   
Total
 
Balance, June 25, 2023
   
25,090
   
$
251
   
$
37,729
   
$
2,439
     
(10,936
)
 
$
(30,028
)
 
$
10,391
 
                                                         
Stock-based compensation expense
   
     
     
79
     
     
     
     
79
 
Net income
   
     
     
     
386
     
     
     
386
 
Balance, September 24, 2023
   
25,090
   
$
251
   
$
37,808
   
$
2,825
     
(10,936
)
 
$
(30,028
)
 
$
10,856
 

                                                       
Stock-based compensation expense
   
     

     
3
     
     
     

      3
 
Purchase of treasury stock
                                         
RSU vested and taxes paid on RSUs
    432       4       (315 )                       (311 )
Net income
   
     
     
     
553
     
     
     
553
 
Balance, December 24, 2023
   
25,522
   
$
255
   
$
37,496
   
$
3,378
     
(10,936
)
 
$
(30,028
)
 
$
11,101
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

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

   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
 
$
939
   
$
655
 
Adjustments to reconcile net income to cash provided by operating activities:
               
Impairment of long-lived assets and other lease charges
   
     
5
 
Stock-based compensation expense
   
82
     
173
 
Depreciation and amortization
   
70
     
70
 
Amortization of operating right of use assets
   
219
     
217
 
Amortization of intangible assets definite-lived
    42       34  
Allowance for bad debts
   
35
     
9
 
Deferred income tax
    71       182  
Changes in operating assets and liabilities:
               
Accounts receivable
   
(69
)
   
696
 
Notes receivable
   
(54
)
   
14
 
Deferred contract charges
   
11
     
2
 
Prepaid expenses and other current assets
   
(254
)
   
41
 
Accounts payable - trade
   
151
     
(91
)
Accrued expenses
   
(442
)
   
(675
)
Operating lease liabilities
   
(249
)
   
(241
)
Deferred revenues
    (247 )     (299 )
Cash provided by operating activities
    305      
792
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Payments received on notes receivable
   
30
     
60
 
Purchase of intangible assets definite-lived
    (8 )     (114 )
Purchase of property and equipment
   
(38
)
   
(23
)
Cash used in investing activities
   
(16
)
   
(77
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Purchase of treasury stock
          (4,979 )
Taxes paid on issuance of restricted stock units
    (311 )      
Payments on short term loan
   
     
(30
)
Cash used in financing activities
   
(311
)
   
(5,009
)
                 
Net decrease in cash and cash equivalents    
(22
)
   
(4,294
)
Cash and cash equivalents, beginning of period
   
5,328
     
7,723
 
Cash and cash equivalents, end of period
 
$
5,306
   
$
3,429
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
               
CASH (REFUNDED)/PAID FOR:                
Income taxes
 
$
(4
)
 
$
91
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6

RAVE RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), 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”) and ghost kitchens (“Pie Five Ghost Kitchen 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. The accompanying condensed consolidated financial statements of Rave Restaurant Group, Inc. have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2023.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments are of a normal recurring nature. Results of operations for the fiscal periods presented are not necessarily indicative of fiscal year-end results.


Note A - Summary of Significant Accounting Policies

Principles of Consolidation
The consolidated financial statements include the accounts of Rave Restaurant Group, Inc. and its subsidiaries, all of which are wholly owned. All appropriate inter-company balances and transactions have been eliminated.

Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Fiscal Quarters
The three and six month periods ended December 24, 2023 and December 25, 2022 each contained 13 weeks and 26 weeks, respectively.

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

Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Statements - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance was effective for the Company on June 26, 2023. There was no material impact on the Company’s consolidated financial statements and related disclosures as a result of adopting this standard.

Revenue Recognition
Revenue is measured based on consideration specified in contracts with customers and excludes incentives and amounts collected on behalf of third parties, primarily sales tax. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.

The following describes principal activities, separated by major product or service, from which the Company generates its revenues:

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.

Franchise royalties, which are based on a percentage of franchise restaurant sales, are recognized as sales occur.

Supplier and distributor incentive revenues are recognized when title to the underlying commodities transfer.

Franchise license fees are typically billed upon execution of the franchise agreement and amortized over the term of the franchise agreement which typically range from five to 20 years. Fees received for renewal periods are amortized over the life of the renewal period.

7

Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign master license agreements. Area development exclusivity fees are included in deferred revenue in the accompanying Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement as the stores are opened. Area development exclusivity fees that include rights to sub-franchise are amortized as revenue over the term of the contract.

Advertising fund contributions for Pizza Inn and Pie Five units represent contributions collected where we have control over the activities of the fund. Contributions are based on a percentage of net retail sales. We have determined that we are the principal in these arrangements, and advertising fund contributions and expenditures are, therefore, reported on a gross basis in the Condensed Consolidated Statements of Income. In general, we expect such advertising fund contributions and expenditures to be largely offsetting and, therefore, do not expect a significant impact on our reported income before income taxes. Our obligation related to these funds is to develop and conduct advertising activities. Pizza Inn and Pie Five marketing fund contributions are billed and collected weekly or monthly.

Supplier convention funds are deferred until the obligations of the agreement are met and the event takes place.

Rental Income

The Company subleases some of its restaurant space to a third party. The Company’s sublease has terms that end in 2025. The sublease agreement is 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.

Total revenues consist of the following (in thousands):

   
Three Months Ended
 
   
December 24,
2023
   
December 25,
2022
 
Franchise royalties
 
$
1,171
   
$
1,171
 
Supplier and distributor incentive revenues
   
1,051
     
1,145
 
Franchise license fees
   
50
     
40
 
Area development exclusivity fees and foreign master license fees
   
3
     
5
 
Advertising funds contributions
    426       453  
Rental income
   
38
     
46
 
Other
    53       6  
   
$
2,792
   
$
2,866
 

   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
 
Franchise royalties
 
$
2,396
   
$
2,385
 
Supplier and distributor incentive revenues
   
2,151
     
2,215
 
Franchise license fees
   
151
     
70
 
Area development exclusivity fees and foreign master license fees
   
7
     
9
 
Advertising funds contributions
    848       919  
Supplier convention funds
   
187
     
172
 
Rental income
   
85
     
93
 
Other
    56       8  
   
$
5,881
   
$
5,871
 

Stock-Based Compensation

The Company accounts for stock options using the fair value recognition provisions of the authoritative guidance on share-based payments. The Company uses the Black-Scholes formula to estimate the value of stock-based compensation for options granted to employees and directors and expects to continue to use this acceptable option valuation model in the future. The authoritative guidance also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow.

Restricted stock units (“RSUs”) represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. Compensation cost for RSUs is measured as an amount equal to the fair value of the RSUs on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on the best estimate of the ultimate achievement level.

8


Note B - 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 agreement subsequent to the primary term.

Restaurant Space Agreements

The Company subleases some of its restaurant space to a third party. The Company’s sublease has terms that end in 2025. The sublease agreement is 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.

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 interest rate. Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information available at the lease 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 for 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.

9

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, have 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 three and six months ended December 24, 2023 and December 25, 2022, the majority of which is included in general and administrative expense in the accompanying Condensed Consolidated Statements of Income, are as follows (in thousands):

   
Three Months
Ended
   
Three Months
Ended
   
Six Months
Ended
   
Six Months
Ended
 
   
December 24,
2023
   
December 25,
2022
   
December 24,
2023
   
December 25,
2022
 
Operating lease cost
 
$
117
   
$
124
   
$
240
   
$
248
 
Sublease income
   
(38
)
   
(46
)
   
(85
)
   
(93
)
Total lease expense, net of sublease income
 
$
79
   
$
78
   
$
155
   
$
155
 

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

   
December 24, 2023
   
December 25, 2022
 
Weighted average remaining lease term
 
2.0 Years
   
2.6 Years
 
Weighted average discount rate
   
4.0
%
   
4.0
%

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

   
Operating Leases
 
2024
  $ 236  
2025
    433  
2026
    382  
2027
    191  
Total operating lease payments
  $ 1,242  
Less: imputed interest
    (70 )
Total operating lease liability
  $ 1,172  


Note C - Commitments and Contingencies


The Company is subject to various claims and contingencies related to employment agreements, franchise disputes, lawsuits, taxes, food product purchase contracts and other matters arising out of the normal course of business. Management believes that any such claims and actions currently pending are either covered by insurance or would not have a material adverse effect on the Company’s results of operations or financial condition if decided in a manner that is unfavorable to the Company.


Note D - Stock-Based Compensation

Stock Options:

For the three and six months ended December 24, 2023, the Company recognized stock-based compensation expense related to stock options of zero and zero, respectively. For the three six months ended December 25, 2022, the Company recognized stock-based compensation expense related to stock options of $4 thousand and $8 thousand, respectively. As of December 24, 2023, there was no unamortized stock-based compensation expense related to stock options.

The following table summarizes the number of shares of the Company’s common stock subject to outstanding stock options:

   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
 
   
Shares
   
Shares
 
Outstanding at beginning of year
   
151,750
     
111,750
 
                 
Granted
   
     
40,000
 
Exercised
   
     
 
Forfeited/Canceled/Expired
   
(8,664
)
   
 
                 
Outstanding at end of period
   
143,086
     
151,750
 
                 
Exercisable at end of period
   
143,086
     
111,750
 

Restricted Stock Units:

For the three and six months ended December 24, 2023, the Company had stock-based compensation expense related to RSUs of $3 thousand and $82 thousand, respectively. For the three and six months ended December 25, 2022, the Company had stock-based compensation expense related to RSUs of $82 thousand and $165 thousand, respectively. As of December 24, 2023, there was $328 thousand unamortized stock-based compensation expense related to RSUs.

As of December 24, 2023 and December 25, 2022, the RSUs will be amortized during the next ten and 34 months, respectively. A summary of the status of restricted stock units as of December 24, 2023, and changes during the six months then ended is presented below:

   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
 
Unvested at beginning of year
   
885,688
     
885,688
 
Granted
   
131,460
     
 
Issued
   
(588,589
)
   
 
Forfeited/Canceled
   
(126,684
)
   
 
Unvested at December 24, 2023
   
301,875
     
885,688
 

10


Note E - Earnings per Share (EPS)

The following table shows the reconciliation of the numerator and denominator of the basic EPS calculation to the numerator and denominator of the diluted EPS calculation (in thousands, except per share amounts):

   
Three Months Ended
   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
   
December 24,
2023
   
December 25,
2022
 
Net income available to common stockholders
 
$
553
   
$
348
   
$
939
   
$
655
 
                                 
BASIC:
                               
Weighted average common shares
   
14,444
     
16,351
     
14,299
     
16,491
 
                                 
Net income per common share
 
$
0.04
   
$
0.02
   
$
0.07
   
$
0.04
 
                                 
DILUTED:
                               
Weighted average common shares
   
14,444
     
16,351
     
14,299
     
16,491
 
Dilutive stock options
   
21
     
     
20
     
 
Weighted average common shares outstanding
   
14,465
     
16,351
     
14,319
     
16,491
 
                                 
Net income per common share
 
$
0.04
   
$
0.02
   
$
0.07
   
$
0.04
 


For the three and six months ended December 24, 2023, exercisable options to purchase 103,086 shares of common stock at exercise prices from $3.95 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero. For the three and six months ended December 24, 2023, zero and 90,625 RSUs were excluded from the computation of diluted EPS because performance criteria is not probable at period end, respectively.



For the three and six months ended December 25, 2022, exercisable options to purchase 111,750 shares of common stock at exercise prices from $3.95 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero. For the three and six months ended December 25, 2022, zero and zero RSUs were excluded from the computation of diluted EPS because performance criteria is not probable at period end, respectively.


Note F - Income Taxes

For the three and six months ended December 24, 2023, the Company recorded an income tax benefit of $13 thousand and a tax expense of $119 thousand, respectively. For the three and six months ended December 25, 2022, the Company recorded an income tax expense of $140 thousand and $232 thousand, respectively. For the three months ended December 24, 2023, the federal tax benefit was $23 thousand and the state tax expense was $10 thousand. For the six months ended December 24, 2023, the federal and state tax expense were $85 thousand and $34 thousand, respectively. For the three months ended December 25, 2022, the federal and state tax expense were $100 thousand and $40 thousand, respectively. For the six months ended December 25, 2022, the federal and state tax expense were $182 thousand and $50 thousand, respectively.


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.


Note G - Segment Reporting

The Company has two reportable operating segments as determined by management using the “management approach” as defined by ASC 280 Disclosures about Segments of an Enterprise and Related Information: (1) Pizza Inn Franchising and (2) Pie Five Franchising. These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.

The Pizza Inn and Pie Five Franchising segments establish franchisees, licensees and territorial rights. Revenue for these segments are derived from franchise royalties, franchise fees, sale of area development and foreign master license rights and incentive payments from third party suppliers and distributors. Assets for these segments include equipment, furniture and fixtures.

Corporate administration and other assets primarily include cash and short-term investments, as well as furniture and fixtures located at the corporate office and trademarks and other intangible assets. All assets are located within the United States.

11

Summarized in the following tables are net operating revenues, depreciation and amortization expense, and income before taxes for the Company’s reportable segments as of the three and six months ended December 24, 2023 and December 25, 2022 (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
   
December 24,
2023
   
December 25,
2022
 
Net sales and operating revenues:
                       
Pizza Inn Franchising
 
$
2,271
   
$
2,351
   
$
4,875
   
$
4,820
 
Pie Five Franchising
   
435
     
470
     
873
     
958
 
Corporate administration and other
   
86
     
45
     
133
     
93
 
Consolidated revenues
 
$
2,792
   
$
2,866
   
$
5,881
   
$
5,871
 
                                 
Depreciation and amortization:
                               
Corporate administration and other
 
$
57
   
$
53
   
$
112
   
$
104
 
Depreciation and amortization
 
$
57
   
$
53
   
$
112
   
$
104
 
                                 
Income before taxes:
                               
Pizza Inn Franchising   $ 1,602     $ 1,695     $ 3,263     $ 3,206  
Pie Five Franchising
   
260
     
259
     
469
     
503
 
Combined
   
1,862
     
1,954
     
3,732
     
3,709
 
Corporate administration and other
   
(1,322
)
   
(1,466
)
   
(2,674
)
   
(2,822
)
Income before taxes
 
$
540
   
$
488
   
$
1,058
   
$
887
 
                                 
Geographic information (revenues):
                               
United States
 
$
2,747
   
$
2,799
   
$
5,783
   
$
5,728
 
Foreign countries
   
45
     
67
     
98
     
143
 
Consolidated revenues
 
$
2,792
   
$
2,866
   
$
5,881
   
$
5,871
 

12

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

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 25, 2023 and may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 25, 2023. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Results of Operations
Overview

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), 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”) and ghost kitchens ("Pie Five Ghost Kitchen 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. At December 24, 2023, franchised and licensed units consisted of the following:

Three Months Ended December 24, 2023
(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
   
112
   
$
25,543
     
24
   
$
4,304
     
136
   
$
29,847
 
                                                 
International Franchised
   
18
             
             
18
         

Six Months Ended December 24, 2023
(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
   
112
   
$
51,573
     
24
   
$
9,071
     
136
   
$
60,644
 
                                                 
International Franchised
   
18
             
             
18
         

The domestic units were located in 17 states predominantly situated in the southern half of the United States. The international units were located in seven foreign countries.

13

Basic net income per share increased $0.02 per share to $0.04 per share for the three months ended December 24, 2023, compared to the comparable period in the prior fiscal year. The Company had net income of $0.6 million for the three months ended December 24, 2023 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $2.8 million for the three months ended December 24, 2023 compared to $2.9 million in the comparable period in the prior fiscal year. The decrease in revenue was primarily due to decreases in franchise royalties and supplier and distributor incentives impacted by decreased store count offset by increased comparable store retail sales.

Basic net income per share increased $0.03 per share to $0.07 per share for the six months ended December 24, 2023, compared to the comparable period in the prior fiscal year. The Company had net income of $0.9 million for the six months ended December 24, 2023 compared to net income of $0.7 million in the comparable period in the prior fiscal year, on revenues of $5.9 million for the six months ended December 24, 2023 compared to $5.9 million in the comparable period in the prior fiscal year. The stability in revenue was primarily due to increases in default and closed store revenues and franchise royalties, offset by a decrease in deferred marketing revenue.

COVID-19 Pandemic

Although the adverse impacts of the COVID-19 pandemic have diminished in recent periods, 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. Therefore, despite the official end of the pandemic, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

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. 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 these meanings 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-based 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, 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.

“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.

14

EBITDA and Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended December 24, 2023 remained relatively stable at $0.6 million compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA remained relatively stable at $1.2 million compared to the same period of 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):

RAVE RESTAURANT GROUP, INC.
ADJUSTED EBITDA
(In thousands)

   
Three Months Ended
   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
   
December 24,
2023
   
December 25,
2022
 
Net income
 
$
553
   
$
348
   
$
939
   
$
655
 
Interest expense
   
     
     
     
1
 
Income taxes
   
(13
)
   
140
     
119
     
232
 
Depreciation and amortization
   
57
     
53
     
112
     
104
 
EBITDA
 
$
597
   
$
541
   
$
1,170
   
$
992
 
Stock-based compensation expense
   
3
     
87
     
82
     
173
 
Severance
   
     
     
     
 
Impairment of long-lived assets and other lease charges
   
     
     
     
5
 
Franchisee default and closed store revenue
   
(18
)
   
(13
)
   
(82
)
   
(13
)
Closed and non-operating store costs
   
     
     
     
 
Adjusted EBITDA
 
$
582
   
$
615
   
$
1,170
   
$
1,157
 

Pizza Inn Brand Summary

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

   
Three Months Ended
   
Six Months Ended
 
   
December 24,
2023
   
December 25,
2022
   
December 24,
2023
   
December 25,
2022
 
Pizza Inn Retail Sales - Total Domestic Units
 
(in thousands, except unit data)
   
(in thousands, except unit data)
 
Domestic Units
                       
Buffet Units - Franchised
 
$
24,558
   
$
22,223
   
$
49,569
   
$
44,664
 
Delco/Express Units - Franchised
   
968
     
1,342
     
1,967
     
2,824
 
PIE Units - Licensed
   
17
     
68
     
37
     
124
 
Total Domestic Retail Sales
 
$
25,543
   
$
23,633
   
$
51,573
   
$
47,612
 
                                 
Pizza Inn Comparable Store Retail Sales - Total Domestic
 
$
24,403
   
$
$ 22,813
   
$
48,999
   
$
45,841
 
                                 
Pizza Inn Average Units Open in Period
                               
Domestic Units
                               
Buffet Units - Franchised
   
75
     
72
     
77
     
73
 
Delco/Express Units - Franchised
   
32
     
46
     
36
     
46
 
PIE Units - Licensed
   
4
     
8
     
5
     
9
 
Total Domestic Units
   
111
     
126
     
118
     
128
 

Pizza Inn total domestic retail sales increased by $1.9 million, or 8.1%, for the three months ended December 24, 2023 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 72 to 75. Comparable store retail sales increased by $1.6 million to $24.4 million for the three month period ended December 24, 2023 as compared to the same period of the prior fiscal year. For the three months ended December 24, 2023, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, supplemented by an increase in comparable domestic store retail sales.

Pizza Inn total domestic retail sales increased by $4.0 million, or 8.3%, for the six months ended December 24, 2023 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 73 to 77. Comparable store retail sales increased by $3.2 million to $49.0 million for the six month period ended December 24, 2023 as compared to the same period of the prior fiscal year. For the six months ended December 24, 2023, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, supplemented by an increase in comparable domestic store retail sales.

15