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 elected to defer one-half of the monthly base rent for the period from June 2020 through May 2021.
As of June 25, 2023, the Company had contingent and direct lease obligations for eight additional restaurant locations. Two of the lease obligations have been subleased and
six of the lease obligations have been assigned to franchisees. These leased properties range in size from 2,025 to 3,000 square feet, have annual rental rates ranging from approximately $30.00 to $42.00 per square foot and expire between 2023
and 2028.
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ITEM 3. LEGAL PROCEEDINGS.
On January 6, 2020, the Company’s former Chief Executive Officer, Scott Crane, filed suit in the U.S. District Court for the Eastern District of Texas alleging various claims in connection with
the Company’s termination of his employment in July 2019. In general, the suit asserted that the Company terminated Crane for the purpose of depriving him of certain equity compensation that otherwise would have been due to him on October 15,
2019. The Company asserted that Crane failed to meet the contractual qualifications for the equity, as well as other defenses. The matter proceeded to trial which resulted in a verdict in favor of Crane, and the trial court entered judgment in
Crane’s favor. The Company appealed the judgment to the Fifth Circuit Court of Appeals, which on May 31, 2023 issued an opinion reversing the trial court and rendering judgment in favor of the Company on all claims brought by Crane, and returning
the matter to the trial court for consideration of costs and attorney fees to be awarded to the Company as the prevailing party in the litigation.
The Company is subject to other 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
The Company’s common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “RAVE”. As of September 18, 2023, there were
approximately 1,888 stockholders of record of the Company’s common stock.
The Company had no sales of unregistered securities during fiscal 2023 or 2022.
The Company did not pay any dividends on its common stock during the fiscal years ended June 25, 2023 or June 26, 2022. 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. On June 28, 2022, the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 5,000,000 shares to a total of
8,016,000 shares. The 2007 Stock Purchase Plan does not have an expiration date.
The following table furnishes information for purchases made pursuant to the 2007 Stock Purchase Plan during fiscal 2023:
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”). 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.
On December 21, 2022, the Company entered into a Stock Purchase Agreement with Hallmark Financial Services, Inc. (“Hallmark”) pursuant to which the Company purchased from
certain direct or indirect subsidiaries of Hallmark an aggregate of 2,246,086 shares of the Company’s common stock at a price of $1.60 per share, resulting in an aggregate purchase price of $3,593,738. The price per share represented the average
closing price of the Company’s common stock on the Nasdaq Capital Market for the preceding 15 trading days. The transaction was approved by the Audit Committee of the Company, which consists of all of the independent directors of the Company.
The Chairman of the Company, Mark E. Schwarz, who is also the Executive Chairman of Hallmark, recused himself from all deliberations with respect to the Stock Purchase Agreement with Hallmark.
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Equity Compensation Plan Information
The following table furnishes information with respect to the Company’s stock option equity compensation plans as of June 25, 2023:
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 25, 2023 and June 26, 2022, Company-owned and franchised restaurants consisted of the following
(in thousands, except unit data):
Fiscal Year Ended June 25, 2023
(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 34 – 34
The domestic units were located in 18 states predominately situated in the southern half of the United States. The international restaurants were located in eight foreign
countries predominantly in the Middle East.
The following table summarizes domestic comparable store retail sales for the Company.
52 Weeks Ended
(in thousands)
Pizza Inn Domestic Comparable Store Retail Sales $ 96,021 $ 86,253
Pie Five Domestic Comparable Store Retail Sales 19,173 18,184
Basic net income per common share decreased $0.34 to net income of $0.11 per share for fiscal 2023 compared to a net income of $0.45 per share in the prior fiscal year.
Diluted net income per common share decreased $0.35 to net income of $0.10 per share for fiscal 2023 compared to a net income of $0.45 per share in the prior fiscal year. Net income decreased $6.4 million to net income of $1.6 million for fiscal
2023 compared to a net income of $8.0 million for the prior fiscal year on revenues of $11.9 million for fiscal 2023 as compared to $10.7 million in fiscal 2022.
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Adjusted EBITDA for the fiscal year ended June 25, 2023, decreased to $2.7 million compared to $2.8 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 1 61
Depreciation and amortization 214 187
Stock-based compensation expense 345 169
Severance — 53
Impairment of long-lived assets and other lease charges 5 6
Franchisee default and closed store revenue (13 ) (38 )
Closed and non-operating store costs — 3
Results of operations for the fiscal years 2023 and 2022 both included 52 weeks.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus (COVID-19) as a pandemic, and the disease spread rapidly throughout the United
States and the world. Federal, state and local responses to the COVID-19 pandemic, as well as our internal efforts to protect customers, franchisees, and employees, severely disrupted our business operations. Further, the COVID-19 pandemic
precipitated significant job losses and a national economic downturn that impacted the demand for restaurant food service.
Although most of our domestic restaurants continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic. During
much of the COVID-19 pandemic, we experienced 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
correspondingly decreased supplier rebates and franchise royalties payable to the Company.
In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and/or enhanced cleaning and disinfecting practices. As a
result, the adverse impacts of the COVID-19 pandemic have diminished in recent periods. Nonetheless, 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.
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 5,335 6,198
Pizza Inn Comparable Store Retail Sales - Total Domestic $ 96,021 $ 86,253
Pizza Inn Average Units Open in Period
Domestic Units
Buffet Units - Franchised 75 71
Delco/Express Units - Franchised 44 51
PIE Units - Licensed 7 10
Pizza Inn total domestic retail sales increased by $12.4 million, or 14.1% compared to the prior year. The increase in domestic retail sales was primarily the result of the
diminished impact of COVID-19 and increased customer engagement. Pizza Inn domestic comparable store retail sales increased by $9.8 million, or 11.3%, for the same reason.
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The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 25, 2023:
Fiscal Year Ended June 25, 2023
Beginning Units Opened Closed Ending Units
Domestic Units:
Buffet Units - Franchised 72 5 — 77
Delco/Express Units - Franchised 47 — 6 41
PIE Units - Licensed 9 — 4 5
International Units (all types) 31 3 — 34
The net decrease of five domestic units was primarily due to declines in Delco and PIE units. We believe that this trend of net domestic store closures is moderating and
will reverse in future periods. The net increase of three international Pizza Inn units was due to new units in the Middle East and New Zealand.
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
Pie Five Comparable Store Retail Sales - Total $ 19,173 $ 18,184
Pie Five Average Units Open in Period
Domestic Units - Franchised 29 32
Total Domestic Units 29 32
Pie Five domestic total retail sales decreased $0.3 million, or 1.5%, compared to the prior year and average units open in the period decreased to 29 from 32 the prior year. The
decrease in domestic retail sales was primarily the result of lower store count. Comparable store retail sales increased by $1.0 million, or 5.4% during fiscal 2023 compared to the prior year. The improvement in comparable store retail
sales was primarily the result of the diminished impact of COVID-19 and increased customer engagement.
The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 25, 2023:
Fiscal Year Ended June 25, 2023
Beginning Units Opened Closed Ending Units
Domestic - Franchised 31 — 4 27
Total Domestic Units 31 — 4 27
The net decrease of four Pie Five units during fiscal 2023 was primarily the result of the closure of poor-performing units.
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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 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 25, 2023 and June 26, 2022 (in thousands):
Pizza Inn Franchising Pie Five Franchising Company-Owned Stores Corporate Total
REVENUES:
Interest income and other — — 23 17 — — — 4 23 21
COSTS AND EXPENSES:
Cost of sales — — — — — 1 — — — 1
Impairment of long-lived assets
and other lease charges — — — — — — 5 6 5 6
Interest expense — — — — — — 1 61 1 61
Depreciation and amortization expense — — — — — — 214 187 214 187
OTHER INCOME:
Employee retention credit — — — — — — — 704 — 704
Total other income — — — — — — — 704 — 704
Revenues:
Revenues are derived from franchise royalties, franchise fees and supplier and distributer incentives, advertising funds, area development exclusivity fees and foreign master
license fees, supplier convention funds, sublease rental income, interest and other income, and sales by Company-owned restaurants. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted
by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors. Total revenues for fiscal 2023 and fiscal 2022 were $11.9 million and $10.7 million, respectively.
Pizza Inn Franchise and License Revenues
Pizza Inn franchise revenues increased by $1.3 million to $9.8 million in fiscal 2023 compared to $8.5 million in fiscal 2022. The 14.9% increase was primarily the result of
an increase in store count, effective marketing campaigns, and a reduction in the impact of COVID-19.
Pie Five Franchise and License Revenues
Pie Five franchise revenues decreased by $0.1 million to $1.9 million for fiscal 2023 compared to $2.0 million for fiscal 2022. The 4.1% decrease was primarily the result of
lower store count.
Restaurant Sales
We had no restaurant sales, which consist of revenue generated by Company-owned restaurants, in fiscal 2023 or fiscal 2022 because we closed our single remaining
Company-owned restaurant during the third quarter of fiscal 2020.
Costs and Expenses:
Cost of Sales
Cost of sales primarily includes food and supply costs, labor costs, and lease costs directly related to Company-owned restaurant sales. These costs decreased to zero for
fiscal 2023 compared to $1 thousand in fiscal 2022. The decrease was primarily the result of the closure of the remaining Company-owned stores during the third quarter of fiscal 2020 partially offset by ongoing lease costs directly related to
closed Company-owned stores.
General and Administrative Expenses
Total general and administrative expenses increased to $5.5 million for fiscal 2023 compared to $5.4 million in the prior fiscal year. The $44 thousand,
or 0.8%, increase in total general and administrative expenses was primarily the result of increased corporate expenses related to a decrease in miscellaneous income offset by a decrease in legal fees.
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Franchise Expenses
Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise
expenses increased $0.7 million to $4.0 million in fiscal 2023 from $3.3 million in the prior fiscal year. Pizza Inn franchise expenses increased $0.8 million to $3.1 million in fiscal 2023 compared to $2.3 million in the prior fiscal year
primarily as a result of an increase in payroll and related, advertising, and travel costs. Pie Five franchise expenses decreased $0.1 million to $0.9 million in fiscal 2023 compared to $1.0 million in the prior fiscal year primarily as a result
of lower store count.
Impairment Expenses
Impairment of long-lived assets and other lease charges were $5 thousand for fiscal 2023 compared to $6 thousand for fiscal 2022. Impairment of long-lived assets and other
lease charges for Company-owned restaurants of zero in fiscal 2023 remained essentially unchanged from the prior year.
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 $27 thousand to $73 thousand in fiscal 2023 compared to $46 thousand in fiscal 2022 primarily related to collectability concerns on international accounts receivable.
Interest Expense
Interest expense decreased $60 thousand for fiscal 2023 to $1 thousand compared to $61 thousand in the prior year.
Amortization and Depreciation Expense
Amortization and depreciation expense increased $27 thousand to $214 thousand in fiscal 2023 compared to $187 thousand in fiscal 2022 primarily as a result of higher
amortization of intangible assets.
Other Income
Other income represents non-recurring income that is not derived from the operations of the Company. The Company had a $0.7 million refundable employee retention tax credit during fiscal 2022
which was the result of governmental actions to mitigate the economic impacts of the COVID-19 pandemic. (See, “Liquidity and Capital Resources – Employee Retention Credit” below.) Management does not presently expect similar benefits to be
available in subsequent periods.
Provision for Income Tax
For the year ended June 25, 2023, the Company recorded an income tax expense of $0.5 million. The federal and state tax expense was $0.4 million and $0.1
million, respectively. The Company utilized net operating losses to offset federal taxes. For the year ended June 26, 2022, the Company recorded an income tax benefit of $5.7 million including federal deferred tax benefit of $5.5 million and
current/deferred state tax benefit of $0.2 million. As of June 25, 2023, the Company had federal net operating loss carryforwards totaling $21 million that are available to reduce future taxable income and will begin to expire in 2035. Under
the Tax Cuts and Jobs Act, approximately $1.4 million of the loss carryforwards are limited to 80% and do not expire. Tax years that remain subject to examination by the IRS are the years ended June 28, 2020 through June 26, 2022. Tax
years that remain subject to examination by state authorities are the years ended June 30, 2019 through June 26, 2022.
The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable
temporary differences, and tax planning strategies. In assessing the need for the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. Future sources of
taxable income are also considered in determining the amount of the recorded valuation allowance. Based on this analysis, the Company reversed the full amount of the established valuation allowance as of June 26, 2022.
There are no uncertain tax positions. Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on the tax
returns would be sustained upon examination.
Liquidity and Capital Resources
Sources and Uses of Funds
Our primary sources of liquidity are cash flows from operating activities, loan proceeds, and proceeds from the sale of securities.
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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 $2.6 million in fiscal 2023 compared to cash provided by operations of $1.4 million in fiscal 2022.
Cash flows from investing activities primarily reflect net proceeds from sale of assets and capital expenditures for the purchase of Company assets. Cash used
in investing activities was $15 thousand in fiscal 2023 compared to cash provided by investing activities of $0.3 million in fiscal 2022. The $0.3 million decrease in cash provided by investing activities was primarily the result of
decreased payments on notes receivable from prior sales of assets.
Cash flows from financing activities generally reflect changes in the Company’s borrowings and securities activity during the period. Net cash used in
financing activities was $5.0 million for the fiscal year ended June 25, 2023 compared to net cash used in financing activities of $2.3 million for the fiscal year June 26, 2022. The cash used in financing activities in fiscal 2023 was
primarily the result of $5.0 million used to repurchase shares of the Company’s common stock. The cash used in financing activities in fiscal 2022 was primarily attributable to the retirement of all outstanding convertible notes, the repurchase
of the Company’s common stock, and the repayment of a short term loan.
Employee Retention Credit
On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law. The CAA expanded eligibility for an employee retention credit for companies impacted by the
COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees. This payroll tax credit was a refundable tax credit
against certain federal employment taxes. For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit. The Company has also benefitted from the CAA guidance to treat expenses
associated with the PPP loan forgiveness as tax deductible.
Convertible Notes
On March 3, 2017, the Company completed a registered shareholder rights offering of its 4% Convertible Senior Notes Due 2022 (“Notes”). Shareholders exercised subscription
rights to purchase all 30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.
The Notes bore interest at the rate of 4% per annum on the principal or par value of $100 per note, payable annually in arrears on February 15 of each year, commencing
February 15, 2018. Interest was payable in cash or, at the Company’s discretion, in shares of Company common stock. The Notes were secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries. During
the fiscal year ended June 26, 2022, no Notes were converted to common shares. The Notes matured on February 15, 2022, at which time all principal and unpaid interest was paid in cash. Therefore, as of June 25, 2023 and June 26, 2022, there were
no Notes outstanding.
Liquidity
We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily from cash on hand and operating cash flow. Based on budgeted and
year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 2024 fiscal year and beyond.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of
assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances. Estimates
and assumptions are reviewed periodically. Actual results could differ materially from estimates.
The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and
therefore require subjective judgments. Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.
Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The Company records a provision for doubtful receivables to
allow for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from
the Company’s estimates.
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The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is
evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value. If impairment is indicated, the carrying value of an impaired asset is
reduced to its fair value, based on discounted estimated future cash flows. The Company recognized pre-tax, non-cash impairment charges of $5 thousand and $6 thousand during fiscal 2023 and 2022, respectively. The Company had $0.2 million in
sublease income during fiscal 2023 and 2022.
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. 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. Based on this analysis, the Company reversed the full amount of the established valuation allowance as of June 26, 2022.
The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present,
and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely
than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. As of June 25, 2023 and June 26, 2022, 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 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.
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.
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ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, as
of the end of the period covered by this report, were effective in assuring that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) accumulated and communicated to management,
including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms.
Management Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934). Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has conducted an evaluation of the effectiveness of its
internal control over financial reporting. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, management has concluded that our internal control over financial reporting was effective as of June 25, 2023.
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:
23.1 Consent of Independent Registered Public Accounting Firm.
23.2 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, 2023 By: /s/ Brandon L. Solano
Brandon L. Solano
Chief Executive Officer
(principal executive officer)
By: /s/ Clinton D. Fendley
Clinton D. Fendley
Chief Financial Officer
(principal financial officer)
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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, 2023
/s/ Clinton D. Fendley
Clinton D. Fendley
Chief Financial Officer
(principal financial officer) September 21, 2023
/s/ Mark E. Schwarz
Mark E. Schwarz
Director and Chairman of the Board September 21, 2023
/s/ Robert B. Page
Robert B. Page
/s/ William C. Hammett, Jr.
William C. Hammett, Jr.
/s/ Clinton J. Coleman
Clinton J. Coleman
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Index
RAVE RESTAURANT GROUP, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page No.
Consolidated Balance Sheets at June 25, 2023 and June 26, 2022 F-5
Notes to Consolidated Financial Statements F-8
F-1
Index
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Rave Restaurant Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Rave Restaurant Group, Inc and subsidiaries (the “Company”) as of June 25, 2023,
and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of June 25, 2023, 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 (“GAAP”).
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our 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 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 entity’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 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 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 financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or
disclosures to which it relates
Assessment of Realizability of Deferred Tax Assets
Critical Audit Matter Description
As disclosed in Note A and Note F to the consolidated financial statements, the Company recognizes deferred income taxes for tax attributes and
for differences between the financial statement and tax carrying amounts of assets and liabilities at enacted statutory tax rates in effect for the years in which the deferred tax liability or asset are expected to be settled or realized. 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. As of June 25, 2023, the Company has deferred tax assets of approximately $5.3 million. Auditing management’s assessment of realizability of deferred tax assets involved subjective estimation and complex auditor judgment in
determining whether sufficient future taxable income, including projected pre-tax income, will be generated to support the realization of the existing deferred tax assets before expiration.
How We Addressed the Matter
We evaluated the assumptions used by the Company to develop projections of future taxable income, including the pre-tax income, by income tax
jurisdiction and tested the completeness and accuracy of the underlying data used in the projections. For example, we compared the projections of pre-tax income with the actual results of prior periods, as well as management’s consideration of
current industry and economic trends. We also compared the projections of future pre-tax income with other forecasted financial information prepared by the Company.
With the assistance of our income tax specialists, we evaluated the methodology and models used in management’s forecasting of the reversal of
deferred income tax assets and liabilities in order to determine such methodologies were consistent with GAAP, including management’s consideration of definite-lived deferred income tax balances and indefinite-lived deferred income tax balances.
We have served as the Company’s auditor since 2023.
/s/ Whitley Penn LLP
Plano, Texas
September 21, 2023
F-2
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Rave Restaurant Group, Inc.
The Colony, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Rave Restaurant Group, Inc. (the “Company”) and subsidiaries as of June 26, 2022 and June 27, 2021, the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 26, 2022 and June 27, 2021, and the results of their operations and their cash flows for the years then ended,in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide 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:
Armanino LLP
Dallas, Texas
We served as the Company’s auditor from 2020 through 2022.
September 23, 2022
F-3
Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Year Ended
COSTS AND EXPENSES:
Cost of sales — 1
General and administrative expenses 5,490 5,446
Impairment of long-lived assets and other lease charges 5 6
Bad debt expense 73 46
Interest expense 1 61
Depreciation and amortization expense 214 187
OTHER INCOME:
Employee retention credit — 704
Total other income — 704
Income tax (expense) benefit (537 ) 5,657
INCOME PER SHARE OF COMMON STOCK - BASIC: $ 0.11 $ 0.45
INCOME PER SHARE OF COMMON STOCK - DILUTED: $ 0.10 $ 0.45
Weighted average common shares outstanding - basic 15,323 17,993
See accompanying Notes to Consolidated Financial Statements.
F-4
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RAVE RESTAURANT GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,328 $ 7,723
Notes receivable, current 105 172
Property held for sale 19 —
Deferred contract charges, current 33 36
Prepaid expenses and other current assets 204 146
LONG-TERM ASSETS
Property and equipment, net 258 365
Operating lease right of use asset, net 1,227 1,664
Intangible assets definite-lived, net 328 232
Notes receivable, net of current portion 28 201
Deferred contract charges, net of current portion 220 224
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 502 $ 669
Other current liabilities 1 81
Operating lease liability, current 463 490
Short term loan — 30
Deferred revenues, current 342 538
LONG-TERM LIABILITIES
Operating lease liability, net of current portion 958 1,421
Deferred revenues, net of current portion 690 793
COMMITMENTS AND CONTINGENCIES (SEE NOTE K)
SHAREHOLDERS’ EQUITY
Treasury stock at cost
Total liabilities and shareholders’ equity $ 14,237 $ 18,516
See accompanying Notes to Consolidated Financial Statements.
F-5
Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
(In thousands)
Common Stock Additional Paid-in Retained Earnings/ Treasury Stock
Shares Amount Capital (Accumulated Deficit) Shares Amount Total
Stock compensation expense — — 169 — — — 169
Purchase of treasury stock — — — — (494 ) (512 ) (512 )
Common Stock Additional Paid-in Retained Earnings Treasury Stock
Shares Amount Capital Shares Amount Total
Stock compensation expense — — 345 — — — 345
Purchase of treasury stock — — — — (3,357 ) (4,979 ) (4,979 )
See accompanying Notes to Consolidated Financial Statements.
F-6
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 to cash provided by operating activities:
Impairment of long-lived assets and other lease charges 5 6
Stock-based compensation expense 345 169
Depreciation and amortization 141 140
Amortization of operating right of use assets 437 421
Amortization of intangible assets definite-lived 73 47
Amortization of debt issue costs — 21
Allowance for bad debts 73 46
Changes in operating assets and liabilities:
Notes receivable 28 80
Deferred contract charges 7 (18 )
Prepaid expenses and other (58 ) 50
Accounts payable - trade (167 ) 25
Other current liabilities — 35
Operating lease liability (490 ) (465 )
Deferred revenues (299 ) (465 )
Cash provided by operating activities $ 2,629 $ 1,384
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 212 500
Proceeds from sale of assets 7 —
Purchase of intangible assets definite-lived (169 ) (96 )
Purchase of property and equipment (65 ) (66 )
Cash (used in)/provided by investing activities (15 ) 338
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (4,979 ) (512 )
Payment of convertible notes — (1,597 )
Payments on short term loan (30 ) (220 )
Cash used in financing activities (5,009 ) (2,329 )
Net decrease in cash and cash equivalents (2,395 ) (607 )
Cash and cash equivalents, beginning of period 7,723 8,330
Cash and cash equivalents, end of period $ 5,328 $ 7,723
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 1 $ 64
Income taxes (net of refunds) $ 87 $ 31
See accompanying Notes to Consolidated Financial Statements.
F-7
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RAVE RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
Rave Restaurant Group, Inc., and its subsidiaries (collectively referred to as the
“Company”, or in the first person notations of “we”, “us” and “our”) franchise pizza buffet, delivery/carry-out and express restaurants domestically and internationally under the trademark “Pizza Inn” and franchise domestic fast casual restaurants
under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses pizza kiosks under the “Pizza Inn” trademark. We facilitate the procurement and distribution of food, equipment and supplies to our domestic and international
system of restaurants through agreements with third party distributors.
As of June 25, 2023, we had 152 franchised Pizza Inn restaurants, 27 franchised Pie Five
Units, and 5 licensed Pizza Inn Express, or PIE, kiosks (“PIE Units”). The 118 domestic franchised Pizza Inn restaurants were comprised of 77
pizza buffet restaurants (“Buffet Units”), 7 delivery/carry-out restaurants (“Delco Units”), and 34 express restaurants (“Express Units”). As of June 25, 2023, there were 34 international franchised Pizza Inn restaurants. Domestic Pizza Inn restaurants and kiosks were located predominantly in the southern half of the United States, with
Arkansas, Texas, North Carolina and Mississippi accounting for approximately 23%, 20%, 15% and 9%, respectively, of the total number of domestic units.
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.
Concentration of Credit Risk:
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and
cash equivalents. Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $250 thousand per