ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
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 27, 2021, the Company had contingent and direct lease obligations for ten additional locations. Two of the lease obligations
have been subleased and eight of the lease obligations have been assigned to franchisees. These leased properties range in size from 2,025 to 2,850 square feet, have annual rental rates ranging from approximately $30.00 to $44.00 per square foot and
expire between 2022 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.
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PART II
As of August 30, 2021, there were approximately 1,895 stockholders of record of the Company’s common stock.
The Company had no sales of unregistered securities during fiscal 2021 or 2020.
The Company’s common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “RAVE”. The following
table shows the highest and lowest price per share of the common stock during each quarterly period within the two most recent fiscal years, as reported by NASDAQ. Such prices reflect inter-dealer quotations, without adjustment for any retail
markup, markdown or commission.
High Low
The Company did not pay any dividends on its common stock during the fiscal years ended June 27, 2021 or June 28, 2020. 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 2007 Stock Purchase Plan does not have an expiration date. There were no stock purchases in the fiscal year ended June 27, 2021.
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 27, 2021, the Company has not repurchased any outstanding shares but 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 27, 2021:
Stock option compensation plans not approved by security holders – – –
ITEM 6. Reserved
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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 27, 2021, Company-owned and franchised restaurants consisted of the following (in
thousands, except unit data):
Fiscal Year Ended June 27, 2021
(in thousands, except unit data)
Pizza Inn Pie Five All Concepts
Ending Units Retail Sales Ending Units Retail Sales Ending Units Retail Sales
Company-Owned – – – – – –
International Franchised 32 – 32
The domestic units were located in 19 states predominately situated in the southern half of the United States. The international
restaurants were located in six foreign countries.
The following table summarizes domestic comparable store retail sales for the Company.
52 Weeks Ended
(in thousands)
Pizza Inn Domestic Comparable Store Retail Sales $ 68,107 $ 68,812
Pie Five Domestic Comparable Store Retail Sales 15,612 16,640
Total Rave Comparable Store Retail Sales $ 83,719 $ 85,452
Basic net income per common share increased $0.37 to net income of $0.09 per share for fiscal 2021 compared to a net loss of $(0.28) per
share in the prior fiscal year. Diluted net income per common share increased $0.37 to net income of $0.09 per share for fiscal 2021 compared to a net loss of $(0.28) per share in the prior fiscal year. Net income increased $5.7 million to net
income of $1.5 million for fiscal 2021 compared to a net loss of $4.2 million for the prior fiscal year on revenues of $8.6 million for fiscal 2021 as compared to $10.0 million in fiscal 2020.
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Adjusted EBITDA for the fiscal year ended June 27, 2021, improved to $2.0 million compared to $0.6 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
Interest expense 92 95
Depreciation and amortization 167 186
Stock compensation expense (income) 80 (104 )
Gain on sale of assets (10 ) (24 )
Impairment of long-lived assets and other lease charges 21 880
Franchisee default and closed store revenue (170 ) (606 )
Closed and non-operating store costs 271 137
Results of operations for the fiscal years 2021 and 2020 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 has
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, have 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. In most cases, in-store dining has now resumed subject to
seating capacity limitations, social distancing protocols, and enhanced cleaning and disinfecting practices. Further, the COVID-19 pandemic has precipitated significant job losses and a national economic downturn that typically impacts the demand
for restaurant food service. Although most of our domestic restaurants have continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic.
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. During the fourth quarter of fiscal 2020, we
participated in a government-sponsored loan program. (See, “Liquidity and Capital Resources--PPP Loan,” below.) We also temporarily furloughed certain employees and reduced base salary by 20% for all remaining employees for the fourth quarter of
fiscal 2020, as well as reducing other expenses. While the Company will remain focused on controlling expenses, future results of operations are likely to be materially adversely impacted by the pandemic and its aftermath.
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 following
social distancing protocols. 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
Pizza Inn Retail Sales - Total Domestic Units (in thousands, except unit data)
Domestic Units
Delco/Express Units – Franchised 6,053 6,200
Pizza Inn Comparable Store Retail Sales - Total Domestic $ 68,107 $ 68,812
Pizza Inn Average Units Open in Period
Domestic Units
Buffet Units – Franchised 77 85
Delco/Express Units – Franchised 55 57
PIE Units – Licensed 12 10
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Pizza Inn total domestic retail sales decreased by $7.7 million, or 9.9% compared to the prior year. The decrease in domestic retail sales
was primarily due to the effects of COVID-19. Pizza Inn domestic comparable store retail sales decreased by $0.7 million, or 1.0%.
The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 27, 2021:
Fiscal Year Ended June 27, 2021
Beginning Units Opened Concept Change Closed Ending Units
Domestic Units:
Buffet Units - Franchised 83 1 (1 ) 13 70
Delco/Express Units - Franchised 55 2 1 4 54
PIE Units - Licensed 13 – – 2 11
International Units (all types) 38 3 – 9 32
The net decrease of 16 domestic units was primarily due to declines in Buffet, Delco, and PIE units. The net decrease of six international
Pizza Inn units was primarily due to closure of underperforming units in Bangladesh 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
(in thousands, except unit data)
Pie Five Retail Sales - Total Units
Domestic Units - Company-owned — 240
Pie Five Comparable Store Retail Sales - Total $ 15,612 $ 16,640
Pie Five Average Units Open in Period
Domestic Units - Franchised 37 53
Domestic Units - Company-owned — 1
Total Domestic Units 37 54
Pie Five domestic total retail sales decreased $8.3 million, or 31.8%, compared to the prior year. Average units open in the
period decreased to 37 from 54 the prior year. Comparable store retail sales decreased by $1.0 million, or 6.2% during fiscal 2021
compared to the prior year.
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The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 27, 2021:
Fiscal Year Ended June 27, 2021
Beginning Units Opened Closed Ending Units
Domestic - Company-owned – – – –
The net decrease of 9 Pie Five units during fiscal 2021 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 27, June 28,
Store weeks (excluding partial weeks) – 30
Average weekly sales – 8,108
Average number of units – 1
Restaurant sales (excluding partial weeks) – 240
Restaurant sales – 240
Loss from continuing operations before taxes (292 ) (1,006 )
Allocated marketing and advertising expenses – 12
Depreciation/amortization expense – –
Impairment, other lease charges and non-operating store costs 291 810
Restaurant operating cash flow (1 ) (184 )
We closed our single remaining Company-owned Pie Five restaurant during the third quarter of fiscal 2020. Average weekly sales for
Company-owned Pie Five restaurants also decreased $8.1 thousand, or 100.0%, to zero for the fiscal year ended June 27, 2021.
Loss from continuing operations before taxes for Company-owned Pie Five stores decreased $0.7 million for the fiscal year ended June 27,
2021 compared to the same period of the prior year primarily due to the closure of all remaining Company-owned restaurants. Similarly, operating cash flow from Company-owned Pie Five restaurants improved by $183 thousand to $1 thousand cash used in
fiscal 2021 compared to $184 thousand cash used in fiscal 2020.
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:
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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 27, 2021 and June 28, 2020 (in thousands):
Pizza Inn Franchising Pie Five Franchising Company-Owned Stores Corporate Total
REVENUES:
Restaurant sales – – – – – 240 – – – 240
Interest income and other – – 16 3 – – (5 ) 37 11 40
COSTS AND EXPENSES:
Gain on sale of assets – – – – – – (10 ) (24 ) (10 ) (24 )
Impairment of long-lived assets
Amortization and depreciation expense – – – – – – 167 186 167 186
OTHER INCOME:
Gain on forgiveness of PPP loan — — — — — — (657 ) — (657 ) —
Total other income — — — — — — (657 ) — (657 ) —
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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, and the products sold to franchisees through third-party food distributors. Total revenues for fiscal 2021 and fiscal 2020 were $8.6 million and $10.0
million, respectively.
Pizza Inn Franchise and License Revenues
Pizza Inn franchise revenues decreased by $0.1 million to $6.6 million in fiscal 2021 compared to $6.7 million in fiscal 2020. The 1.2%
decrease was primarily due to the effects of COVID-19.
Pie Five Franchise and License Revenues
Pie Five franchise revenues decreased by $1.1 million to $1.8 million for fiscal 2021 compared to $2.9 million for fiscal 2020. The 37.7%
decrease was primarily due to reduced restaurant count and the effects of COVID-19.
Restaurant Sales
We had no restaurant sales, which consist of revenue generated by Company-owned restaurants, in 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 39.9%, or $175 thousand, to $264 thousand for fiscal 2021 compared to $439 thousand in fiscal 2020. The decrease was primarily the result of the closure of all remaining Company-owned stores during the third quarter of fiscal
2020 offset by ongoing lease costs directly related to the closed Company-owned stores.
General and Administrative Expenses
Total general and administrative expenses decreased $0.8 million to $4.7 million for fiscal 2021 compared to $5.5 million for the prior
fiscal year. General and administrative expenses for Company-owned restaurants decreased $83 thousand to $7 thousand for fiscal 2021 compared to $90 thousand for the prior fiscal year primarily as a result of the closure of all remaining
Company-owned stores during the third quarter of fiscal 2020. General and administrative expenses for corporate decreased $0.7 million to $4.7 million for fiscal 2021 compared to $5.4 million for the prior year primarily as a result of a decrease in
Pie Five advertising costs and payroll and related partially offset by an increase in Pizza Inn advertising costs.
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 decreased $0.7 million to $2.4 million in fiscal 2021 from $3.1 million in the prior fiscal year. Pizza Inn franchise expenses increased $0.1 million to $1.4 million in fiscal 2021 compared to $1.3
million in the prior fiscal year primarily as a result of an increase in payroll and related, advertising, and travel costs partially offset by a decrease in convention costs. Pie Five franchise expenses decreased by $0.8 million to $1.0 million in
fiscal 2021 compared to $1.8 million in the prior fiscal year primarily as a result of a reduction in advertising costs.
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 $10 thousand in fiscal 2021 compared to $24 thousand in the prior year.
Impairment Expenses
Impairment of long-lived assets and other lease charges were $21 thousand for fiscal 2021 compared to $880 thousand for fiscal 2020.
Impairment of long-lived assets and other lease charges for Company-owned restaurants decreased to $21 thousand in fiscal 2021 compared to $717 thousand in fiscal 2020 primarily due to a reduction in lease charges for closed stores.
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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 increased by $68 thousand to $121 thousand in fiscal 2021 compared to $53 thousand in fiscal 2020 primarily related to domestic accounts receivable.
Interest Expense
Interest expense decreased $3 thousand for fiscal 2021 to $92 thousand compared to $95 thousand in the prior year.
Amortization and Depreciation Expense
Amortization and depreciation expense decreased $19 thousand to $167 thousand in fiscal 2021 compared to $186 thousand in fiscal 2020
primarily as a result of lower amortization of software.
Provision for Income Tax
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 continued to maintain a full valuation allowance for the year ended June 27, 2021.
At the end of tax year ended June 27, 2021, the Company had net operating loss carryforwards totaling $23.6 million that are available to
reduce future taxable income and will begin to expire in 2032. Under the Tax Cuts and Jobs Act, approximately $1.78 million of the loss carryforwards are limited to 80% and do not expire.
As of June 27, 2021, tax years remained open to examination from June 24, 2012, by the federal and state tax authorities, for three or four years from the
tax year in which net operating losses or tax credits are utilized. The Company was not subject to any open income tax examinations by any tax authority as of June 27, 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.
On March 27, 2020, President Trump signed into law the CARES Act. The legislation enacts various measures to assist companies affected by
the COVID-19 pandemic. Key income tax-related provisions of the bill include temporary modifications to net operating loss utilization and carryback limitations, allowance of refundable alternative minimum tax credits, reduced limitation of
charitable contributions, reduced limitations of business interest expense, and technical corrections to depreciation of qualified improvement property.
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, an omnibus spending bill that includes an array
of COVID-related tax relief for individuals and businesses. The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the CARES Act. The Act also
extends a number of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022, which are currently deductible at 50% for years ending December 31, 2020. The
Company determined that income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the year ended June 27, 2021.
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 $1.5 million in fiscal 2021 compared to cash used in operations of $0.4 million in fiscal year 2020. The increase in
operating cash flow was primarily attributable to an increase in net income and the decrease in deferred income tax.
Cash flows from investing activities reflect net proceeds from sale of assets and capital expenditures for the purchase of Company assets.
Cash used by investing activities was $0.2 million in fiscal 2021 compared to cash provided by investing activities of $0.1 million in fiscal 2020.
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Cash flows from financing activities generally reflect changes in the Company’s borrowings and securities activity during the period. Net
cash provided by financing activities was $3.9 million and $1.0 million for the fiscal years ended June 27, 2021 and June 28, 2020, respectively. Cash flows from financing activities for fiscal 2021 were primarily the result of proceeds sales of
stock in an at-the-market offering. Cash flows from financing activities for fiscal 2020 were primarily the result of proceeds from a government-sponsored loan program and sales of stock in the at-the-market offering.
We expect cash flow from operations during fiscal 2022 to continue to be negatively impacted by the COVID-19 pandemic. However, management believes the cash on
hand combined with cash from operations will be sufficient to fund operations for the next 12 months.
PPP Loan
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.
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 is being 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 bear 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 is payable in cash or, at the Company’s discretion, in shares of Company common stock. The Notes mature on February 15, 2022, at which time all principal and unpaid interest will be payable in
cash or, at the Company’s discretion, in shares of Company common stock. The Notes are secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries.
Noteholders may convert their Notes to common stock as of the 15th day of any calendar month, unless the Company sooner elects to
redeem the Notes. The conversion price is $2.00 per share of common stock. Accrued interest will be paid through the effective date of the conversion in cash or, at the Company’s sole discretion, in shares of Company common stock.
During fiscal 2021, none of the Notes were converted to common shares. As of June 27, 2021, $1.6 million in par value of the Notes was
outstanding, offset by $28 thousand of unamortized debt issue costs and unamortized debt discounts.
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 2022 fiscal year.
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.
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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. During fiscal year 2021, the Company tested its long-lived assets for impairment and recognized $21 thousand in pre-tax, non-cash impairment charges. The Company had
lease charges related to closed units of $0.7 million partially offset by $0.2 million in sublease income.
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. The Company has continued to maintain a full valuation
allowance for the year ended June 27, 2021.
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 27, 2021 and June 28, 2020, 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 but are disclosed below. Short-term lease costs exclude expenses related to leases with a lease term of one month or less.
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.
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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.
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 27, 2021, 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 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 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 statement of operations 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 statement of operations in
the period in which the obligation for those payments is incurred.
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The components of total lease expense for the fiscal year ended June 27, 2021, the majority of which is included in general and administrative expense, are as follows (in thousands):
Fiscal Year Ended June 27, 2021
Operating lease cost $ 705
Sublease income (200 )
Total lease expense, net of sublease income $ 505
Supplemental cash flow information related to operating leases is included in the table below (in thousands):
Fiscal Year Ended June 27, 2021
Cash paid for amounts included in the measurement of lease liabilities $ 755
Supplemental balance sheet information related to operating leases is included in the table below (in thousands):
Fiscal Year Ended June 27, 2021
Operating lease right of use assets, net $ 2,085
Operating lease liabilities, current 465
Operating lease liabilities, net of current portion 1,911
Weighted average remaining lease term and weighted average discount rate for operating leases are as follows:
Fiscal Year Ended June 27, 2021
Weighted average remaining lease term 4.0 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
Total operating lease payments $ 2,626
Less: imputed interest (250 )
Total operating lease liability $ 2,376
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.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
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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 27, 2021.
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.
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.
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.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
3. Exhibits:
4.4 Description of Registrant’s Securities.
21
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21.1 List of Subsidiaries.
23.1 Consent of Independent Registered Public Accounting Firm.
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
32.1 Section 1350 Certification of Principal Executive Officer.
32.2 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.
ITEM 16. FORM 10-K SUMMARY.
None.
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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 21, 2021 By: /s/ Brandon L. Solano
Brandon L. Solano
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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 21, 2021
/s/ Mark E. Schwarz
Mark E. Schwarz
Director and Chairman of the Board September 21, 2021
/s/ Robert B. Page
Robert B. Page
/s/ William C. Hammett, Jr.
William C. Hammett, Jr.
/s/ Clinton J. Coleman
Clinton J. Coleman
24
Index
RAVE RESTAURANT GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page No.
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets at June 27, 2021 and June 28, 2020. F-4
Notes to Consolidated Financial Statements. F-7
F-1
Index
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 sheet of Rave Restaurant Group, Inc. (the “Company”) and subsidiaries as of June 27, 2021 and June 28,
2020, the related consolidated statements of operations and comprehensive loss, 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 27, 2021 and June 28, 2020, and the results of their operations and their cash flows for the year 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit 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:
ArmaninoLLP
Dallas, Texas
We have served as the Company’s auditor since 2020.
September 21, 2021
F-2
Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal Year Ended
COSTS AND EXPENSES:
General and administrative expenses 4,710 5,503
Gain on sale of assets (10 ) (24 )
Impairment of long-lived assets and other lease charges 21 880
Interest expense 92 95
Depreciation and amortization expense 167 186
OTHER INCOME:
Gain on forgiveness of PPP loan (657 ) —
Total other income (657 ) —
INCOME (LOSS) BEFORE TAXES 1,491 (155 )
Income tax (benefit) expense (29 ) 4,078
INCOME (LOSS) PER SHARE OF COMMON STOCK - BASIC: $ 0.09 $ (0.28 )
INCOME (LOSS) PER SHARE OF COMMON STOCK - DILUTED: $ 0.09 $ (0.28 )
Weighted average common shares outstanding - basic 17,307 15,144
See accompanying Notes to Consolidated Financial Statements.
F-3
Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,330 $ 2,969
Restricted cash — 234
Notes receivable, current 901 546
Deferred contract charges, current 35 44
Prepaid expenses and other 196 174
LONG-TERM ASSETS
Property, plant and equipment, net 445 366
Operating lease right of use asset, net 2,085 3,567
Intangible assets definite-lived, net 183 155
Notes receivable, net of current portion 52 449
Deferred contract charges, net of current portion 207 231
Deposits and other — 5
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 644 $ 446
Accounts payable - lease termination impairments — 407
Other current liabilities 46 —
Operating lease liability, current 465 632
Short term loan, current 250 —
Deferred revenues, current 626 254
LONG-TERM LIABILITIES
Convertible notes, net of current portion — 1,549
Operating lease liability, net of current portion 1,911 3,471
Deferred revenues, net of current portion 1,170 960
Other long-term liabilities — 51
COMMITMENTS AND CONTINGENCIES (SEE NOTE K)
SHAREHOLDERS’ EQUITY
Treasury stock at cost
Total shareholders’ equity 5,733 503
Total liabilities and shareholders’ equity $ 13,345 $ 9,705
See accompanying Notes to Consolidated Financial Statements.
F-4
Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Common Stock Additional Paid-in Accumulated Treasury Stock
Shares Amount Capital Deficit Shares Amount Total
Stock compensation expense – – (104 ) – – – (104 )
Conversion of senior notes, net – – (31 ) – 32 95 64
Equity issue costs - ATM Offering – – (15 ) – – – (15 )
Common Stock Additional Paid-in Accumulated Treasury Stock
Shares Amount Capital Deficit Shares Amount Total
Stock compensation expense – – 80 – – – 80
Equity issue costs - ATM Offering – – (131 ) – – – (131 )
See accompanying Notes to Consolidated Financial Statements.
F-5
Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income (loss) to cash used in operating activities:
Impairment of long-lived assets and other lease charges 21 880
Stock compensation expense 80 (104 )
Depreciation and amortization 131 145
Amortization of operating right of use assets 569 471
Amortization of intangible assets definite-lived 36 41
Amortization of debt issue costs 27 29
Gain on the sale of assets (10 ) (24 )
Provision for bad debt 7 53
Bad debt on notes receivable 114 —