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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

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

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

		Three Months Ended
		September 29, 2024				September 24, 2023
REVENUES		$	3,050			$	3,087
COSTS AND EXPENSES
General and administrative expenses			1,416				1,319
Franchise expenses			995				1,172
Provision (recovery) for credit losses			(17	)			25
Interest income			(82	)			(2	)
Depreciation and amortization expense			43				55
Total costs and expenses			2,355				2,569
INCOME BEFORE TAXES			695				518
Income tax expense			169				132
NET INCOME		$	526			$	386
INCOME PER SHARE OF COMMON STOCK
Basic		$	0.04			$	0.03
Diluted		$	0.04			$	0.03
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic			14,587				14,154
Diluted			14,799				14,762

		September 29, 2024				June 30, 2024
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,383			$	2,886
Short-term investments			7,050				4,945
Accounts receivable, less allowance for credit losses of $40 and $57, respectively			1,365				1,411
Notes receivable, current			67				68
Assets held for sale			27				33
Deferred contract charges, current			24				26
Prepaid expenses and other current assets			340				167
Total current assets			10,256				9,536
LONG-TERM ASSETS
Property and equipment, net			159				182
Operating lease right-of-use assets, net			720				817
Intangible assets definite-lived, net			232				252
Notes receivable, net of current portion			70				79
Deferred tax asset, net			4,613				4,756
Deferred contract charges, net of current portion			235				197
Total assets		$	16,285			$	15,819
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade		$	443			$	359
Accrued expenses			974				915
Operating lease liabilities, current			383				402
Deferred revenues, current			198				343
Total current liabilities			1,998				2,019
LONG-TERM LIABILITIES
Operating lease liabilities, net of current portion			465				555
Deferred revenues, net of current portion			521				543
Total liabilities			2,984				3,117
COMMITMENTS AND CONTINGENCIES (SEE NOTE C)
SHAREHOLDERS’ EQUITY
Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,522,171 and 25,522,171 shares, respectively; outstanding 14,586,566 and 14,586,566 shares, respectively			255				255
Additional paid-in capital			37,636				37,563
Retained earnings			5,438				4,912
Treasury stock, at cost
Shares in treasury: 10,935,605 and 10,935,605 respectively			(30,028	)			(30,028	)
Total shareholders’ equity			13,301				12,702
Total liabilities and shareholders’ equity		$	16,285			$	15,819

		Common Stock								Additional Paid-in				Retained				Treasury Stock
		Shares				Amount				Capital				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

		Common Stock								Additional Paid-in				Retained				Treasury Stock
		Shares				Amount				Capital				Earnings				Shares				Amount				Total
Balance, June 30, 2024			25,522			$	255			$	37,563			$	4,912				(10,936	)		$	(30,028	)		$	12,702
Stock-based  compensation expense			—				—				73				—				—				—				73
Net income			—				—				—				526				—				—				526
Balance, September 29, 2024			25,522			$	255			$	37,636			$	5,438				(10,936	)		$	(30,028	)		$	13,301

		Three months ended
		September 29, 2024				September 24, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	526			$	386
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of discount on short-term investment			(66	)			—
Stock-based compensation expense			73				79
Depreciation and amortization			23				34
Amortization of operating right-of-use assets			97				112
Amortization of definite-lived intangible assets			20				21
Non-cash lease expense			9				—
Provision (recovery) for credit losses			(17	)			25
Deferred income tax			143				108
Changes in operating assets and liabilities:
Accounts receivable			63				48
Notes receivable			—				(48	)
Deferred contract charges			(36	)			20
Prepaid expenses and other current assets			(173	)			(184	)
Accounts payable - trade			84				81
Accrued expenses			59				281
Operating lease liabilities			(118	)			(127	)
Deferred revenues			(167	)			(208	)
Cash provided by operating activities			520				628
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments			(5,039	)			—
Maturities of short-term investments			3,000				—
Payments received on notes receivable			10				15
Proceeds from sale of assets			6				—
Purchase of definite-lived intangible assets			—				(5	)
Purchase of property and equipment			—				(22	)
Cash used in investing activities			(2,023	)			(12	)
Net (decrease)/increase in cash and cash equivalents			(1,503	)			616
Cash and cash equivalents, beginning of period			2,886				5,328
Cash and cash equivalents, end of period		$	1,383			$	5,944
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Income taxes (net of refunds)		$	50			$	5

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 30, 2024 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 30, 2024. 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”), express restaurants (“Express Units”) and ghost kitchens (“Pizza Inn Ghost Kitchen Units”) 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 September 29, 2024, franchised and licensed units consisted of the following:

Three Months Ended September 29, 2024

(in thousands, except unit data)

The domestic units were located in 15 states predominantly situated in the southern half of the United States. The international units were located in eight foreign countries.

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 and Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended September 29, 2024 increased $0.1 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)

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:

Pizza Inn total domestic retail sales decreased by $0.7 million, or 2.5%, for the three months ended September 29, 2024 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 75 to 78. Comparable store retail sales decreased by $0.5 million, or 2.1%, for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended September 29, 2024, the decrease in domestic retail sales were primarily the result of the decrease in comparable domestic store retail sales, offset by an increase in Buffet Units.

The following chart summarizes Pizza Inn restaurant activity for the three months ended September 29, 2024:

There was a net decrease of three units in the total domestic Pizza Inn unit count during the three months ended September 29, 2024. There were zero transfers in the total domestic Pizza Inn unit count during the three months ended September 29, 2024. For the three months ended September 29, 2024, the number of international Pizza Inn units increased by two units. There were zero transfers in the total international Pizza Inn unit count during the three months ended September 29, 2024. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Pie Five Brand Summary

The following tables summarize certain key indicators for the Pie Five franchised restaurants that management believes are useful in evaluating performance:

Pie Five total domestic retail sales decreased by $1.8 million, or 37.5%, for the three months ended September 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 27 to 20. Comparable store retail sales decreased by $0.3 million, or 8.7%, for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended September 29, 2024, the decrease in domestic retail sales were primarily the result of the decrease in store count, supplemented by a decrease in comparable store retail sales.

The following chart summarizes Pie Five restaurant activity for the three months ended September 29, 2024:

The Pie Five units remained stable during the three months ended September 29, 2024. We believe that Pie Five units will decrease modestly in future periods.

Financial Results

The Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the three months ended September 29, 2024 and September 24, 2023 (in thousands):

Revenues:

Revenues are derived from franchise royalties, supplier and distributor incentives, franchise license fees, area development exclusivity fees and foreign master license fees, advertising funds, supplier convention funds, sublease rental income, and other income. 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 the three month period ended September 29, 2024 and for the same period in the prior fiscal year were $3.1 million and $3.1 million, respectively.

Pizza Inn franchise revenues increased by $0.1 million to $2.7 million for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The 4.5% increase was driven by increases in supplier and distributor incentives.

Pie Five franchise revenues decreased by $0.1 million to $0.3 million for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The 29.7% decrease was driven by decreases in domestic royalties.

Costs and Expenses:

Total general and administrative expenses increased by $0.1 million to $1.4 million for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. The 7.4% increase was driven by increases in legal fees, primarily due to decreases in legal settlement recoveries.

Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise expenses decreased by $0.2 million to $1.0 million for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. The 15.1% decrease was driven by decreases in advertising fees.

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high-risk accounts receivable. For the three month period ended September 29, 2024, recoveries for credit losses was $17 thousand compared to provision for credit losses of $25 thousand for the same period in the prior fiscal year. During the three month period ended September 29, 2024, the Company recorded a gain in provision for credit losses due to the recoveries of receivables that had been previously reserved.

Interest expense was zero for the three months ended September 29, 2024 compared to zero for the same fiscal period of the prior year. Interest income increased by $80 thousand to $82 thousand for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The increase was primarily driven by interest received on U.S. Treasury bills.

Amortization and depreciation expense decreased by $12 thousand to $43 thousand for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The decrease was primarily the result of lower depreciation of equipment.

For the three months ended September 29, 2024 and September 24, 2023, the Company recorded an income tax expense of $169 thousand and $132 thousand, respectively. The increase was driven by increases in federal taxes, primarily due to higher taxable income.

Basic net income per share increased $0.01 per share to $0.04 per share for the three months ended September 29, 2024, compared to the comparable period in the prior fiscal year. The Company had net income of $0.5 million for the three months ended September 29, 2024 compared to net income of $0.4 million in the comparable period in the prior fiscal year, on revenues of $3.1 million for the three months ended September 29, 2024 compared to $3.1 million in the comparable period in the prior fiscal year. The stability in revenue was primarily due to increases in supplier and distributor incentives, offset by a decrease in domestic royalties.

Liquidity and Capital Resources

During the three month period ended September 29, 2024, the Company's primary source of liquidity was proceeds from operating activities.

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, stock-based compensation, and changes in working capital. Cash provided by operating activities was $0.5 million for the three month period ended September 29, 2024 compared to cash provided by operating activities of $0.6 million for the three month period ended September 24, 2023. The primary driver of decreased operating cash flow during the three month period ended September 29, 2024 was decreased accrued expenses related to payroll and related costs.

Cash flows from investing activities reflect purchases and maturities of short-term investments as well as net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities during the three month period ended September 29, 2024 was $2.0 million compared to cash used in investing activities of $12 thousand for the three months ended September 24, 2023. Net cash used by investing activities during the three month period ended September 29, 2024 was primarily attributable to increased purchases of U.S. treasury bills.

Cash flows used in financing activities generally reflect changes in the Company's stock and debt activity during the period. Net cash used in financing activities was zero for the three month periods ended September 29, 2024 and September 24, 2023.

Management believes the cash on hand combined with net cash provided by operations will be sufficient to fund operations for the next 12 months 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 an allowance for credit losses 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.

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. In the event of a closed franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. 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 the 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 operating performance.

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 September 29, 2024 and June 30, 2024, 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.

Not required for a smaller reporting company.

The Company maintains disclosure controls and procedures designed to ensure that information it is required to disclose in the reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including the Company’s principal executive officer and principal financial officer, or persons performing similar functions, have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer, or persons performing similar functions, have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. During the most recent fiscal quarter, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

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 annual results of operations or financial condition if decided in a manner that is unfavorable to the Company.

Not required for a smaller reporting company.

Not applicable.

Not applicable.

Not applicable.