ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 1C. CYBERSECURITY.
The Company recognizes the critical importance of maintaining the safety and security of our systems and data and has a holistic process for overseeing and
managing cybersecurity and related risks. The Company believes that cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not
reasonably likely to materially affect our business strategy, results of operations or financial condition.
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Cybersecurity Risk Management and Strategy
Personnel
The Company has an information security program and procedures in place to protect, identify, detect, respond to and manage reasonably foreseeable cybersecurity risks and
threats. The Company uses various security tools that help prevent, identify, investigate, resolve and recover from identified vulnerabilities and security incidents to protect our information systems and data from cybersecurity threats. This
framework is implemented and overseen by management’s information security department which is led by the Information Technology (“IT”) Support Associate Director and overseen by the Company’s IT Steering Committee. The IT Support Associate
Director has over twenty years of experience in technology management and cybersecurity. The IT Steering Committee is comprised of the Company’s two Associate IT Directors, the CEO, and CFO and convenes quarterly to review IT control policies
and procedures are properly followed and any new employees were properly onboarded in compliance with security procedures.
Third Party Engagement
The Company employs third party risk security vendors to identify, mitigate, and remediate cybersecurity risks; however, we rely on the third parties we use to implement
security programs commensurate with their risks, and we cannot ensure in all circumstances that their efforts will be successful. An annual penetration test is performed in April, which is a security test that simulates a real-world threat to
the Company’s IT network and includes comprehensive “Dark Web” searches of all domain user emails. The test performed by Connection (Data Partner) revealed no current cybersecurity breaches. Scans of the Company’s firewall are conducted
during the first week of each quarter by third party vendor Contego. Any necessary remediation would also be provided by Contego after the scan, but none has been required. The Company uses SolarWinds with Sentinel One software from Contego
to continually monitor technology systems for viruses, malicious software, executable harmful files, and other cybersecurity risks. The Company requires the annual submission of SOC 1 security certificates from our third-party vendors which
have access to our financial and sales data. The Company also maintains cybersecurity insurance providing coverage for certain costs related to security failures and specified cybersecurity related incidents.
The Company recognizes that threat actors frequently target employees to gain unauthorized access to information systems. Therefore, each employee is required to complete
information security and data privacy training to build awareness of cybersecurity risks to the organization. The Company has engaged third party vendor Knowbe4 to send each employee an email that mimics a potentially harmful phishing attempt
each month and to report to management the results of the phishing security test.
Governance
The Board of Directors are acutely aware of the critical nature of managing risks associated with cybersecurity threats. Each quarterly meeting, management presents a
cybersecurity update which includes results of testing by third-party vendors and any suspected cybersecurity incidents to the entire Board of Directors. Management would report any material cybersecurity breach immediately to the full Board
of Directors. The Company has a written policy for the employee reporting of any cybersecurity suspected incidents.
The Audit Committee of the Board has the primary responsibility to oversee effective governance in managing risks associated with cybersecurity threats. Our Audit Committee is
composed of members with diverse expertise, including risk management, technology, and finance, equipping them to oversee cybersecurity risks effectively.
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 30, 2024, the Company had contingent and direct lease obligations for four additional restaurant locations. One of the lease obligations have been subleased and
three of the lease obligations have been assigned to franchisees. These leased properties range in size from 2,193 to 2,428 square feet, have annual rental rates ranging from approximately $35.00 to $42.00 per square foot and expire between
2025 and 2028.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various claims and contingencies related to employment agreements, franchise disputes, lawsuits, taxes, food product purchase contracts and other
matters arising out of the normal course of business. Management believes that any such claims and actions currently pending are either covered by insurance or would not have a material adverse effect on the Company’s annual results of
operations or financial condition if decided in a manner that is unfavorable to the Company.
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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 19,
2024, there were approximately 1,887 stockholders of record of the Company’s common stock.
The Company had no sales of unregistered securities during fiscal 2024 or 2023.
The Company has not paid dividends historically, and currently there is no intention to pay any dividends on our common stock, but dividends may be considered in the future.
Equity Compensation Plan Information
The following table furnishes information with respect to the Company’s stock option equity compensation plans as of June 30, 2024:
Stock option compensation plans not approved by security holders — — —
RSU compensation plans approved by security holders 403,595 1.59 —
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”), express (“Express Units”) restaurants and ghost kitchens (“Pizza Inn Ghost Kitchen
Units”) under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) and ghost kitchens (“Pie Five Ghost Kitchen Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses
Pizza Inn Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors.
At June 30, 2024, franchised and licensed restaurants consisted of the following:
Fiscal Year Ended June 30, 2024
(in thousands, except unit data)
Pizza Inn Pie Five All Concepts
Ending Units Retail Sales Ending Units Retail Sales Ending Units Retail Sales
The domestic units were located in 15 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.
Fiscal years 2024 and 2023 included 53 weeks and 52 weeks, respectively. In order to reflect comparable 53 week periods, the first week of fiscal 2024 has been included in
both periods in the presentation of retail sales, average units open and comparable store retail sales.
The following table summarizes domestic comparable store retail sales for the Company.
53 Weeks Ended
(in thousands)
Pizza Inn Domestic Comparable Store Retail Sales $ 100,875 $ 98,610
Pie Five Domestic Comparable Store Retail Sales 16,801 17,450
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Pizza Inn Brand Summary
The following tables summarize certain key indicators for the Pizza Inn franchised and licensed domestic units that management believes are useful in evaluating performance:
53 Weeks Ended
Pizza Inn Retail Sales - Total Domestic Units (in thousands, except unit data)
Delco/Express Units - Franchised 3,846 5,418
PIE Units - Licensed 70 208
Pizza Inn Ghost Kitchen Units - Franchised 4 —
Pizza Inn Comparable Store Retail Sales - Total Domestic $ 100,875 $ 98,610
Pizza Inn Average Units Open in Period
Buffet Units - Franchised 76 73
Delco/Express Units - Franchised 29 44
PIE Units - Licensed 4 8
Pizza Inn Ghost Kitchen Units - Franchised — —
Pizza Inn total domestic retail sales increased by $3.9 million, or 3.8%, for fiscal 2024 when compared to the prior 53 weeks. Compared to the prior year, average Buffet Units
open in the period increased from 73 to 76. Comparable store retail sales increased by $2.3 million to $100.9 million for fiscal 2024 as compared to the prior 53 weeks. For fiscal 2024, the increase in domestic retail sales were primarily the
result of the increase in Buffet Units, supplemented by an increase in comparable domestic store retail sales.
The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 30, 2024:
Fiscal Year Ended June 30, 2024
Beginning Units Opened Concept Change Transfer Closed Ending Units
Delco/Express Units - Franchised 41 1 — — 19 23
PIE Units - Licensed 5 — — — 2 3
Pizza Inn Ghost Kitchen Units - Franchised — 1 — — — 1
International Units (all types) 34 6 — — 16 24
There was a net decrease of 18 units in the total domestic Pizza Inn unit count during fiscal 2024. There were four transfers in the total domestic Pizza Inn unit count during
fiscal 2024. For fiscal 2024, the number of international Pizza Inn units decreased by 10 units. Twelve units were terminated in Saudi Arabia for failure to pay royalties and subsequently a 50-unit development agreement was signed with a
new franchise partner who opened five Pizza Inn units in Saudi Arabia in fiscal year 2024. There were zero transfers in the total international Pizza Inn unit count during fiscal 2024. The Company believes the number of both
domestic and international Pizza Inn units will increase modestly in future periods.
Pie Five Brand Summary
The following tables summarize certain key indicators for the Pie Five franchised restaurants that management believes are useful in evaluating performance:
53 Weeks Ended
Pie Five Retail Sales - Total Units (in thousands, except unit data)
Pie Five Ghost Kitchen Units - Franchised 11 —
Pie Five Comparable Store Retail Sales - Total $ 16,801 $ 17,450
Pie Five Average Units Open in Period
Pie Five Units - Franchised 24 30
Pie Five Ghost Kitchen Units - Franchised 1 —
Total Domestic Units 25 30
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Pie Five total domestic retail sales decreased by $3.5 million, or 17.2%, for fiscal 2024 when compared to the prior year. Compared to the prior year, average units open in
the period decreased from 30 to 25. Comparable store retail sales decreased by $0.6 million to $16.8 million for fiscal 2024 as compared to the prior year. For fiscal 2024, the decrease in domestic retail sales were primarily the result of
the decrease in store count, supplemented by a decrease in comparable store retail sales.
The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 30, 2024:
Fiscal Year Ended June 30, 2024
Beginning Units Opened Concept Change Transfer Closed Ending Units
Pie Five Units - Franchised 27 — (2 ) 6 7 18
Pie Five Ghost Kitchen Units - Franchised — 2 — 1 — 2
The was a net decrease of seven units in the total domestic Pie Five unit count during fiscal 2024. There was a net increase of one Pie Five Ghost Kitchen Units during fiscal
2024. Two Pie Five units converted to become Pizza Inn Buffet units. Of the seven Pie Five closures, two were due to lease expirations, one was closed by mutual decision of the franchise owner and Rave management, and four were unilaterally
closed by franchise owner decision. We believe that Pie Five units will decrease modestly in future periods.
Non-GAAP Financial Measures and Other Terms
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and
discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and
for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.
We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other
parties interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe
that Adjusted EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. Management also uses
these non-GAAP financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.
The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have these meanings and are calculated as follows:
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Financial Results
The Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the Fiscal Years
ended June 30, 2024 and June 25, 2023 (in thousands):
Pizza Inn Franchising Pie Five Franchising Corporate Total
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
REVENUES:
COSTS AND EXPENSES:
Impairment of long-lived assets and other lease charges — — — — — 5 — 5
Provision for credit losses — — — — 69 73 69 73
Interest (income) expense — — — — (153 ) 1 (153 ) 1
Depreciation and amortization expense — — — — 219 214 219 214
Revenues:
Revenues are derived from franchise royalties, supplier and distributer incentives, franchise license fees, area development exclusivity fees and foreign master license fees,
advertising funds, supplier convention funds, sublease rental income, and other income. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales
and restaurant count, as well as the products sold to franchisees through third-party food distributors.
Total revenues for fiscal 2024 and fiscal 2023 were $12.2 million and $11.9 million, respectively.
Pizza Inn Franchise and License
Pizza Inn franchise revenues increased by $0.5 million to $10.3 million for fiscal 2024 as compared to $9.8 million for fiscal 2023. The 4.9% increase was driven by increases
in supplier and distributor incentives.
Pie Five Franchise and License
Pie Five franchise revenues decreased by $0.2 million to $1.7 million for fiscal 2024 as compared to $1.9 million for fiscal 2023. The 8.7% decrease was driven by decreases in
domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues.
Costs and Expenses:
General and Administrative Expenses
Total general and administrative expenses decreased by $0.2 million to $5.3 million for fiscal 2024 as compared to $5.5 million for fiscal 2023. The 4.1%
decrease was driven by decreased salary and stock-based compensation expense.
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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 decreased by $0.3 million to $3.7 million in fiscal 2024 as compared to $4.0 million for fiscal 2023. Pizza Inn franchise expenses decreased $0.1 million to $3.0 million for fiscal 2024 compared to $3.1 million for fiscal 2023. The
2.4% decrease was driven by decreases in advertising fees. Pie Five franchise expenses decreased $0.2 million to $0.7 million for fiscal 2024 compared to $0.9 million for fiscal 2023. The 25.2% decrease was driven by decreases in advertising
fees and salaries.
Impairment of Long-lived Assets and Other Lease Charges
Impairment of long-lived assets and other lease charges was zero for fiscal 2024 compared to $5 thousand for fiscal 2023. The decrease was primarily due to impaired beverage
equipment in the prior period.
Provision for Credit Losses
The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. Provision for
credit losses decreased by $4 thousand to $69 thousand for fiscal 2024 as compared to $73 thousand for fiscal 2023. The 4.7% decrease was driven by the write-off of bad debt, partially offset by the increase in accounts over 90 days.
Interest Expense and Income
Interest expense decreased $1 thousand for fiscal 2024 to zero compared to $1 thousand in the prior year. Interest income increased $153 thousand for fiscal 2024 to $153
thousand compared to zero in the prior year. The increase was primarily driven by interest received on U.S. Treasury bills.
Amortization and Depreciation Expense
Amortization and depreciation expense increased slightly for fiscal 2024, compared to fiscal 2023. The increase was primarily the result of higher amortization of intangible
assets from an increase in expenditures for developing a new prototype.
Provision for Income Taxes
Total income tax expense consists of the following (in thousands):
Fiscal Year Ended
Federal tax expense $ 530 $ 394
Total income tax expense $ 619 $ 537
For the year ended June 30, 2024, the Company recorded an income tax expense of $619 thousand. The federal and state tax expense was $530 thousand and $89
thousand, respectively. The change in both federal and state tax expense was primarily driven by the increase in net income, utilization of jurisdictional operating losses and a current year tax deduction for stock-based compensation. The
Company utilized net operating losses to offset federal taxes. At the end of tax year ended June 30, 2024, the Company had federal net operating loss carryforwards totaling $18.9 million that are available to reduce future taxable income
and will begin to expire in 2035. Under the Tax Cuts and Jobs Act, approximately $1.3 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, 2021 through June 25, 2023. Tax years that remain subject to examination by state authorities are the years ended June 30, 2020 through June 25, 2023.
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 a 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 any required valuation allowance.
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.
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Basic net income per common share increased $0.06 to net income of $0.17 per share for fiscal 2024 compared to a net income of $0.11 per share in the prior fiscal year. Diluted net income per
common share increased $0.07 to net income of $0.17 per share for fiscal 2024 compared to a net income of $0.10 per share in the prior fiscal year. Net income increased $0.9 million to net income of $2.5 million for fiscal 2024 compared to a
net income of $1.6 million for the prior fiscal year on revenues of $12.2 million for fiscal 2024 as compared to $11.9 million in fiscal 2023.
Adjusted EBITDA for the fiscal year ended June 30, 2024, increased to $3.2 million compared to $2.7 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 (income) expense (153 ) 1
Depreciation and amortization 219 214
Stock-based compensation expense 149 345
Severance 5 —
Impairment of long-lived assets and other lease charges — 5
Franchisee default and closed store revenue (156 ) (13 )
Results of operations for the fiscal years 2024 and 2023 included 53 weeks and 52 weeks, respectively.
Liquidity and Capital Resources
Sources and Uses of Funds
During fiscal 2024, the Company’s primary source of liquidity was proceeds from operating activities.
Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes,
stock-based compensation, and changes in working capital. Cash provided by operating activities was $2.7 million in fiscal 2024 compared to cash provided by operating activities of $2.6 million in fiscal 2023. The primary driver of increased
operating cash flow during fiscal 2024 was increased net income due to lower employee related expenses.
Cash flows from investing activities reflect purchases and maturities of short term investments as well as net proceeds from the sale of assets and capital expenditures for
the purchase of Company assets. Cash used in investing activities during fiscal 2024 was $4.9 million compared to cash used in investing activities of $15 thousand in fiscal 2023.
Cash flows used in financing activities generally reflect changes in the Company’s stock and debt activity during the period. Net cash used in financing
activities was $0.3 million for fiscal 2024 compared to net cash used in financing activities of $5.0 million for fiscal 2023. Net cash used by financing activities in fiscal 2024 was primarily attributable to taxes paid on vested
Restricted Stock Units (“RSUs”). Net cash used by financing activities in fiscal 2023 was primarily attributable to repurchases of the Company’s stock.
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 2025 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.
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Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The Company records an allowance for credit losses to allow
for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from the
Company’s estimates.
The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is
evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value. If impairment is indicated, the carrying value of an impaired asset is
reduced to its fair value, based on discounted estimated future cash flows. The Company recognized pre-tax, non-cash impairment charges of zero and $5 thousand during fiscal 2024 and 2023, respectively. The Company had $0.1 million and $0.2
million in sublease income during fiscal 2024 and 2023, respectively.
Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and
convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. In the event of a closed
franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. Royalties and advertising fund revenues, which are based on a percentage
of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.
The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable
temporary differences, and tax planning strategies. The Company assess whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not”
standard. In assessing the need for the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight is given to
evidence that can be objectively verified, including recent operating performance. Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance.
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 30, 2024 and June 25, 2023, 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.
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.
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None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures,
as of the end of the period covered by this report, were effective in assuring that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) accumulated and communicated to
management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms.
Management’s Annual 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 30, 2024.
ITEM 9B. OTHER INFORMATION.
During the quarter ended June 30, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation
S-K.
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.
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 26, 2024 By: /s/ Brandon L. Solano
Brandon L. Solano
Chief Executive Officer
(principal executive officer)
By: /s/ Jay D. Rooney
Jay D. Rooney
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 26, 2024
/s/ Mark E. Schwarz
Mark E. Schwarz
Director and Chairman of the Board September 26, 2024
/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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RAVE RESTAURANT GROUP, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page No.
Consolidated Balance Sheets at June 30, 2024 and June 25, 2023 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 sheets of Rave Restaurant Group, Inc and subsidiaries (the “Company”) as of June 30, 2024 and June 25, 2023,
and the related consolidated statements of income, shareholders’ equity, and cash flows for the fiscal years 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 30, 2024 and June 25, 2023, and the results of their operations and their cash flows for the fiscal years 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
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the 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 entity’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 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 audits 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 audits provide a reasonable basis for our opinion.
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Index
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 E 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 30, 2024, the Company has deferred tax assets of approximately $4.8 million. Auditing management’s assessment of recoverability 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 26, 2024
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Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Fiscal Year Ended
COSTS AND EXPENSES
General and administrative expenses 5,267 5,490
Impairment of long-lived assets and other lease charges — 5
Provision for credit losses 69 73
Interest (income) expense (153 ) 1
Depreciation and amortization expense 219 214
Income tax expense (619 ) (537 )
INCOME PER SHARE OF COMMON STOCK - BASIC $ 0.17 $ 0.11
INCOME PER SHARE OF COMMON STOCK - DILUTED $ 0.17 $ 0.10
Weighted average common shares outstanding - basic 14,446 15,323
Weighted average common shares outstanding - diluted 14,630 15,911
See accompanying Notes to Consolidated Financial Statements.
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Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,886 $ 5,328
Short term investments 4,945 —
Notes receivable, current 68 105
Assets held for sale 33 19
Deferred contract charges, current 26 33
Prepaid expenses and other current assets 167 204
LONG-TERM ASSETS
Property and equipment, net 182 258
Operating lease right of use assets, net 817 1,227
Intangible assets definite-lived, net 252 328
Notes receivable, net of current portion 79 28
Deferred contract charges, net of current portion 197 220
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 359 $ 502
Operating lease liabilities, current 402 464
Deferred revenues, current 343 342
LONG-TERM LIABILITIES
Operating lease liabilities, net of current portion 555 958
Deferred revenues, net of current portion 543 690
COMMITMENTS AND CONTINGENCIES (SEE NOTE I)
SHAREHOLDERS’ EQUITY
Treasury stock, at cost
Total liabilities and shareholders’ equity $ 15,819 $ 14,237
See accompanying Notes to Consolidated Financial Statements.
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Index
RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
(In thousands)
Common Stock Additional Paid-in Retained Earnings Treasury Stock Total
Shares Amount Capital Shares Amount
Stock compensation expense — — 345 — — — 345
Purchase of treasury stock — — — — (3,357 ) (4,979 ) (4,979 )
Common Stock Additional Paid-in Retained Earnings Treasury Stock Total
Shares Amount Capital Shares Amount
Stock compensation expense — — 149 — — — 149
See accompanying Notes to Consolidated Financial Statements.
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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:
Amortization of discount on short term investment (50 ) —
Impairment of long-lived assets and other lease charges — 5
Stock-based compensation expense 149 345
Depreciation and amortization 135 141
Amortization of operating right of use assets 410 437
Amortization of intangible assets definite-lived 84 73
Non cash lease expense 46 —
Provision for credit losses 69 73
Changes in operating assets and liabilities:
Notes receivable (119 ) 28
Deferred contract charges 30 7
Prepaid expenses and other current assets 37 (58 )
Accounts payable - trade (143 ) (167 )
Accrued expenses 25 (272 )
Operating lease liabilities (511 ) (490 )
Deferred revenues (146 ) (299 )
Cash provided by operating activities 2,740 2,629
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short term investments (10,115 ) —
Maturities of short term investments 5,220 —
Payments received on notes receivable 105 212
Proceeds from sale of assets 3 7
Purchase of intangible assets definite-lived (8 ) (169 )
Purchase of property and equipment (76 ) (65 )
Cash used in investing activities (4,871 ) (15 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock — (4,979 )
Taxes paid on issuance of restricted stock units (311 ) —
Payments on short term loan — (30 )
Cash used in financing activities (311 ) (5,009 )
Net decrease in cash and cash equivalents (2,442 ) (2,395 )
Cash and cash equivalents, beginning of year 5,328 7,723
Cash and cash equivalents, end of year $ 2,886 $ 5,328
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ — $ 1
Income taxes (net of refunds) $ 5 $ 87
See accompanying Notes to Consolidated Financial Statements.
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Index
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, express restaurants and ghost kitchens 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 30, 2024, we had 126 franchised Pizza Inn restaurants, 20 franchised Pie Five
Units, and three licensed Pizza Inn Express, or PIE, kiosks (“PIE Units”). The 102 domestic franchised Pizza Inn restaurants were comprised of 78
pizza buffet restaurants (“Buffet Units”), six delivery/carry-out restaurants (“Delco Units”), 17 express restaurants (“Express Units”), and one ghost kitchen
(“Pizza Inn Ghost Kitchen Units”). As of June 30, 2024, there were 24 international franchised Pizza Inn restaurants. Domestic Pizza
Inn restaurants and kiosks were located predominantly in the southern half of the United States, with Texas, North Carolina, Arkansas and Mississippi accounting for approximately 23%, 16%, 14% and 10%, 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.
Short Term Investments:
The Company holds short term investments in treasury bills, classified as trading securities. Accordingly, interest income is recorded through the
Consolidated Statements of Income, when earned. Management has elected to classify all treasury bills as short-term, regardless of their maturity dates, as these are readily available to fund current operations and can be liquidated at any time
at the discretion of the Company. As of June 30, 2024 and June 25, 2023, the Company held treasury bills valued at $4.9 million and zero, respectively, which are included within short term investments on the accompanying Consolidated Balance Sheets. Interest income is reflected in
the accompanying Consolidated Statements of Income and Cash Flows. For the years ended June 30, 2024 and June 25, 2023, interest income recognized on the treasury bills was $151 thousand and zero, respectively.
Fair Value Measurements:
Assets and liabilities carried at fair value are categorized based on the level of judgment associated with the inputs used to measure their fair
value. Authoritative guidance for fair value measurements establishes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three levels:
The fair value of the Company’s investments in U.S. Treasury bills at June 30, 2024 and June 25, 2023, was determined using level 1 observable
inputs. Management believes the carrying amounts of other financial instruments at June 30, 2024 and June 25, 2023, including cash, accounts receivable, accounts payable, and accrued expenses are representative of their fair values due to their
short term maturities.
The following table summarizes the Company’s financial assets and financial liabilities measured at fair value at June 30, 2024:
Fair Value Measurements Level 1 Level 2 Level 3 Total
The Company did not have any
financial assets or liabilities at June 25, 2023 that were measured at fair value. The Company has no financial assets or liabilities classified within Level 3 of the valuation hierarchy.
These items are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The
assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.
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
institution. At June 30, 2024 and June 25, 2023, the Company had cash and cash equivalent balances in excess of FDIC insurance coverage of approximately $2.4
million and $5.1 million, respectively. We do not believe we are exposed to any significant credit risk on cash and cash equivalents.
The Company invests in U.S. Treasury bills, which are considered short term investments. While U.S. Treasury bills are not
insured by the FDIC, they are backed by the full faith and credit of the United States government. As a result, the Company believes the credit risk associated with these investments is minimal.
Notes receivable, which potentially subject the Company to concentrations of credit risk, consist primarily of promissory notes
from franchise agreements and structured Company-financed sales of assets. At June 30, 2024 and June 25, 2023, and at various times during the fiscal years then ended, the Company had concentrations of credit risk with four franchisees on notes receivables with both short and long term maturities. As of June 30, 2024, the Company had one short term notes receivable and three
long term notes receivable with four franchisees. The financed asset sales were executed with a weighted average interest rate of 4.8%. Principal payments are due monthly and mature from January 1, 2025 to January 1, 2027.
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Index
Property
and Equipment:
Property and equipment are stated at cost
less accumulated depreciation and amortization. Repairs and maintenance are charged to operations as incurred while major renewals and betterments are capitalized. Upon the sale or disposition of any property or equipment, the asset and the
related accumulated depreciation or amortization are removed from the accounts and the gain or loss is included in operations. The Company capitalizes interest on borrowings during the active construction period of major capital projects.
Capitalized interest is added to the cost of the underlying asset and amortized over the estimated useful life of the asset.
Depreciation and amortization are computed on
the straight-line method over the estimated useful lives of the assets or, in the case of leasehold improvements, over the term of the lease including any reasonably assured renewal periods, if shorter. The useful lives of the assets range from three to ten years.
Impairment of Long-Lived Asset and other Lease Charges:
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 zero and $5 thousand during fiscal 2024 and 2023, respectively. The Company had $0.1 million and $0.2 million in sublease income during fiscal 2024 and 2023, respectively.
Accounts Receivable and Allowance for Credit Losses:
Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The
Company records an allowance for credit losses to allow for any amounts that may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. After all attempts to
collect a receivable have failed, the receivable is written off against the allowance. Finance charges may be accrued at a rate of 18%
per year, or up to the maximum amount allowed by law, on past due receivables. The interest income recorded from finance charges is immaterial.
The Company monitors franchisee
receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. Provision for credit losses decreased by $4 thousand to $69 thousand in fiscal 2024 compared to $73 thousand in fiscal 2023 primarily related to collectability concerns on international accounts receivable.
Changes in the allowance for
credit losses from continuing operations consisted of the following (in thousands):
Beginning balance $ 58 $ 27
Provision for credit losses 69 73
Amounts written off (70 ) (42 )
Ending balance $ 57 $ 58
Notes Receivable:
Notes receivable primarily consist of promissory notes arising from franchisee agreements and structured Company-financed sales
of assets. The majority of amounts and terms are evidenced by formal promissory notes and personal guarantees. All notes allow for early payment without penalty. Fixed principal payments are due monthly. Notes receivable mature at various dates
through 2027 and bore interest at a weighted average rate of 4.8% at June 30, 2024.
Notes receivable are reported at original issue amount less principal repaid, reduced by an allowance for credit losses. An
allowance for expected credit losses is determined based on a specific assessment of all notes that are delinquent or determined to be doubtful to be collected. Notes are considered delinquent if the repayment terms are not met. All amounts deemed
to be uncollectible are charged against the allowance for credit losses in the period that determination is made.