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Item 5. Market for Registrant’s Common Equity

2020-09-28 compared with 2019-09-30 · 20 added, 525 removed, 35 unchanged (94% of the section changed)

3 unchanged sentences

The Company’s common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “RAVE”.

The following table shows the highest and lowest price per share of the

common stock during each quarterly period within the two most recent fiscal years, as reported by NASDAQ.

The following table shows the highest and lowest

price per share of the common stock during each quarterly period within the two most recent fiscal years, as reported by NASDAQ.

Such prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or commission.

Fiscal 2020 :

Fourth Quarter Ended 6/28/2020

2 unchanged sentences

First Quarter Ended 9/29/2019

Fiscal 2019 :

Fourth Quarter Ended 06/30/2019

3 unchanged sentences

The Company did not pay any dividends on its common stock during the fiscal years ended June 28, 2020 or June 30, 2019.

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.

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.

Stock Purchase Plan does not have an expiration date.

On May 23, 2007, the Company’s board of directors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase on our behalf of up to 1,016,000

shares of our common stock in the open market or in privately negotiated transactions.

On June 2, 2008, the Company’s board of directors amended the 2007 Stock Purchase Plan to increase the number of shares of common stock the Company may

repurchase by 1,000,000 shares to a total of 2,016,000 shares.

On April 22, 2009 the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 1,000,000

shares to a total of 3,016,000 shares.

The 2007 Stock Purchase Plan does not have an expiration date.

There were no stock purchases in the fiscal year ended June 28, 2020.

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

The Company’s ability to purchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the Securities and

Exchange Commission (the “SEC”).

Subsequent to June 28, 2020, the Company has not repurchased any outstanding shares but may make further purchases under the 2007 Stock Purchase Plan.

The Company may also purchase shares of our common stock other than pursuant to the 2007

Stock Purchase Plan or other publicly announced plans or programs .

The Company may also purchase shares of our common stock

other than pursuant to the 2007 Stock Purchase Plan or other publicly announced plans or programs .

Equity Compensation Plan Information

The following table furnishes information with respect to the Company’s stock option equity compensation plans as of June 28, 2020:

Plan Category

Number of securities to

12 unchanged sentences

Stock option compensation plans not approved by security holders

Securities remaining available for future issuance are net of a maximum of 232,659 shares of common stock issuable pursuant to outstanding restricted stock units, subject to applicable vesting requirements and performance criteria.

Note H to the audited consolidated financial statements included in this report.

SELECTED FINANCIAL DATA

Not required for a smaller reporting company.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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.”

The Company franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and operates 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 30, 2019, Company-owned and franchised restaurants consisted of the following (in thousands, except unit data):

Fiscal Year Ended June 30, 2019

(in thousands, except unit data)

Domestic Franchised/Licensed

Company-Owned

Total Domestic Units

International Franchised

The domestic units were located in 21 states predominately situated in the southern half of the United States.

The international restaurants were located in seven foreign countries.

The following table summarizes domestic comparable store retail sales for the Company.

53 Weeks Ended

(in thousands)

Pizza Inn Domestic Comparable Store Retail Sales

Pie Five Domestic Comparable Store Retail Sales

Total Rave Comparable Store Retail Sales

Basic net income per common share decreased $0.19 to a net loss of $0.05 per share for fiscal 2019 compared to net income of $0.14 per share in the prior fiscal year.

Net income decreased $2.7 million

to a net loss of $0.8 million for fiscal 2019 compared to net income of $1.9 million for the prior fiscal year on revenues of $12.3 million for fiscal 2019 as compared to $15.1 million in fiscal 2018.

Diluted net income per common share decreased $0.18 to a net loss of $0.05 per share for fiscal 2019 compared to net income of $0.13 per share in the prior fiscal year.

Adjusted EBITDA for the fiscal year ended June 30, 2019, improved to $1.2 million compared to $0.6 million for the comparable period of the prior fiscal year.

The following table sets forth a

reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):

Fiscal Year Ended

Net income / (loss)

Interest expense

Income taxes - discontinued ops

Depreciation and amortization

Stock compensation expense

Pre-opening costs

(Gain) / loss on sale/disposal of assets

Impairment of long-lived assets and other lease charges

Discontinued operations, excluding taxes

Closed and non-operating store costs

Adjusted EBITDA

Results of operations for the fiscal years 2019 and 2018 included 53 weeks and 52 weeks, respectively.

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.

53 Weeks Ended

Pizza Inn Retail Sales - Total Domestic Units

(in thousands, except unit data)

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Retail Sales

Pizza Inn Comparable Store Retail Sales - Total Domestic

Pizza Inn Average Units Open in Period

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

Pizza Inn total domestic retail sales increased $1.6 million, or 1.8% compared to the prior year.

The increase in domestic retail sales was primarily due to an increase in domestic comparable store

retail sales.

Pizza Inn domestic comparable store retail sales increased by 2.6%.

The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 30, 2019:

Fiscal Year Ended June 30, 2019

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

International Units (all types)

The net increase of two domestic units is primarily due to new PIE units partially offset by modest declines in Buffet and Delco units.

The net decrease of ten international Pizza Inn units is due to

closure of underperforming units in the Middle East.

We believe that this represents a stabilizing of international unit count.

Pie Five Brand Summary

The following tables summarize certain key indicators for the Pie Five franchised and Company-owned restaurants that management believes are useful in evaluating performance.

53 Weeks Ended

(in thousands, except unit data)

Pie Five Retail Sales - Total Units

Domestic Units - Franchised

Domestic Units - Company-owned

Total Domestic Retail Sales

Pie Five Comparable Store Retail Sales - Total

Pie Five Average Units Open in Period

Domestic Units - Franchised

Domestic Units - Company-owned

Total Domestic Units

Pie Five total domestic retail sales decreased $7.1 million, or 14.6%, compared to the prior year.

Average units open in the period decreased to 67 from 81 the prior year.

Comparable store retail

sales decreased by 4.4% during fiscal 2019 compared to the prior year.

The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 30, 2019:

Fiscal Year Ended June 30, 2019

Domestic - Franchised

Domestic - Company-owned

Total Domestic Units

The net decrease of 15 Pie Five units during fiscal 2019 was primarily the result of the closure of poor-performing units, which we believe provides us a stronger foundation for future brand growth.

We believe that this trend of net store closures will moderate and then reverse in future periods.

One franchised Pie Five unit was acquired by the Company during fiscal 2019 but was refranchised by the end of the fiscal year.

Pie Five - Company-Owned Restaurants

Fiscal Year Ended

(in thousands, except store weeks and average data)

Store weeks (excluding partial weeks)

Average weekly sales

Average number of units

Restaurant sales (excluding partial weeks)

Restaurant sales

Loss from continuing operations before taxes

Allocated marketing and advertising expenses

Depreciation/amortization expense

Pre-opening costs

Operations management and extraordinary expenses

Impairment, other lease charges and non-operating store costs

Restaurant operating cash flow

Total retail sales of Company-owned Pie Five restaurants decreased $3.4 million, or 79.1%, to $0.9 million for fiscal 2019 compared to $4.3 million for fiscal 2018 primarily as a result of decreased

Average weekly sales for Company-owned Pie Five restaurants also decreased $454, or 3.9%, to $11,253 for the fiscal year ended June 30, 2019 compared to $11,707 for the prior year.

The decrease in average weekly sales was primarily

attributable to a similar decline in comparable store retail sales.

Loss from continuing operations before taxes for Company-owned Pie Five stores increased $0.2 million for the fiscal year ended June 30, 2019 compared to the same period of the prior year primarily as

a result of increased impairment of long-lived assets and other lease charges.

Similarly, operating cash flow from Company-owned Pie Five restaurants declined by $0.3 million to $0.7 million cash used in fiscal 2019 compared to $0.4 million cash used

in fiscal 2018.

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

We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment.

We believe that Adjusted EBITDA provides

additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period.

We believe that restaurant operating cash flow is a useful

metric to investors in evaluating the ongoing operating performance of Company-owned restaurants and comparing such store operating performance from period to period.

Management also uses these non-GAAP financial measures for evaluating operating

performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.

The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have the meaning and are calculated as follows:

“EBITDA” represents earnings before interest, taxes, depreciation and amortization.

“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock compensation expense, pre-opening expense, gain/loss on sale of assets, costs related to impairment, discontinued operations and closed

and non-operating store costs.

“Retail sales” represents the restaurant sales reported by our franchisees and Company-owned restaurants, which may be segmented by brand or domestic/international locations.

“Comparable store retail sales” includes the retail sales for restaurants that have been open for at least 18 months as of the end of the reporting period.

The sales results for a restaurant that was closed temporarily for remodeling or

relocation within the same trade area are included in the calculation only for the days that the restaurant was open in both periods being compared.

“Store weeks” represent the total number of full weeks that specified restaurants were open during the period.

“Average units open” reflects the number of restaurants open during a reporting period weighted by the percentage of the weeks in a reporting period that each restaurant was open.

“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks) divided by store weeks in the period.

“Restaurant operating cash flow” represents the pre-tax income earned by Company-owned restaurants before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) pre-opening expenses, (4) operations

management and extraordinary expenses, (5) impairment and other lease charges, and (6) non-operating store costs.

“Non-operating store costs” represent gain or loss on asset disposal, store closure expenses, lease termination expenses and expenses related to abandoned store sites.

“Pre-opening expenses” consist primarily of certain costs incurred prior to the opening of a Company-owned restaurant, including:

(1) marketing and promotional expenses, (2) accrued rent, and (3) manager salaries, employee payroll and

related training costs.

Fiscal years 2019 and 2018 included 53 weeks and 52 weeks, respectively.

In order to reflect comparable 53 week periods, the first week of fiscal 2019 has been included in both

periods in the presentation of retail sales, average units open and comparable store retail sales.

Financial Results

Company-Owned

Fiscal Year-to-Date

Franchise and license revenues

Restaurant sales

Interest income and other

Total revenues

COSTS AND EXPENSES:

Cost of sales

General and administrative expenses

Franchise expenses

Pre-opening expenses

(Gain)/loss on sale of assets

Impairment of long-lived assets

and other lease charges

Interest expense

Amortization and depreciation expense

Total costs and expenses

INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES

Revenues are derived from (1) franchise royalties, franchise fees and supplier incentives, (2) sales by Company-owned restaurants, and (3) interest 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, and the products sold to franchisees through third-party food distributors.

Total revenues for fiscal 2019 and fiscal 2018

were $12.3 million and $15.1 million, respectively.

Pizza Inn Franchise and License Revenues

Pizza Inn franchise revenues increased by $0.3 million to $7.2 million in fiscal 2019 compared to $6.9 million in fiscal 2018.

The 4.4% increase was primarily the result of increased retail sales,

largely attributable to domestic comparable stores.

Pie Five Franchise and License Revenues

Pie Five franchise revenues increased by $0.2 million to $4.2 million for fiscal 2019 compared to $4.0 million for fiscal 2018.

The 5.6% increase was primarily driven by accelerated

revenue recognition of fees attributable to defaulted area developments and closed stores and contributions to advertising and convention funds by franchisees and suppliers partially offset by decreased franchise royalties from decreased franchised

Restaurant Sales

Restaurant sales, which consist of revenue generated by Company-owned restaurants, decreased 79.1%, or $3.4 million, to $0.9 million for fiscal 2019 compared to $4.3 million for fiscal 2018.

decrease in restaurant sales was primarily a result of decreased Company-owned store count.

Costs and Expenses:

Cost of Sales

Cost of sales primarily includes food and supply costs and labor directly related to Company-owned restaurant sales.

These costs decreased 69.3%, or $2.5 million, to $1.1 million for fiscal 2019

compared to fiscal 2018.

The decrease was primarily the result of decreased Company-owned store count.

General and Administrative Expenses

Total general and administrative expenses decreased $2.3 million to $5.3 million for fiscal 2019 compared to $7.6 million for the prior fiscal year.

General and administrative expenses for

Company-owned restaurants decreased $0.6 million to $0.2 million for fiscal 2019 compared to $0.8 million for the prior fiscal year primarily as a result of lower store count.

General and administrative expenses for corporate decreased $1.8 million to

$5.0 million for fiscal 2019 compared to $6.8 million for the prior year primarily as a result of reduced general and administrative employees.

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 $1.1

million to $3.8 million in fiscal 2019 from $2.6 million in the prior fiscal year.

Pizza Inn franchise expenses increased $0.4 million to $1.7 million in fiscal 2019 compared to $1.3 million in the prior fiscal year primarily

as a result of the change in treatment of convention fund contributions due to adoption of Topic 606.

Pie Five franchise expenses increased by $0.8 million to $2.1 million in fiscal 2019 compared to $1.3 million in the prior fiscal year

primarily as a result of the change in treatment of advertising fund contributions due to adoption of Topic 606 .

Pre-Opening Expense

Pre-opening expenses are directly related to the number of new corporate store openings.

There were no pre-opening expenses for fiscal 2019 compared to $0.1 million in fiscal 2018.

The decrease was due

to a reduction in openings of Company-owned restaurants.

(Gain)/Loss on sale of assets

The Company’s (gain) / loss on sale of assets reflects the net difference between the sale price of assets and the net carrying value of the assets at the time of sale.

(Gain) / loss on sale of assets

improved to a gain of $0.6 million in fiscal 2019 compared to a gain of $0.1 million in the prior year due to the sale of two Pie Five units that we acquired at no cost basis.

Impairment Expenses

Impairment of long-lived assets and other lease charges were $1.7 million for fiscal 2019 compared to $0.9 million for fiscal 2018.

Impairment of long-lived assets and other lease charges among

Company-owned restaurants of $1.4 million consisted primarily of impairments of leasehold improvements and equipment and lease charges for closed stores.

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 $0.9

million to $1.3 million in fiscal 2019 compared to $0.4 million in fiscal 2018 related to uncollectible domestic and international accounts receivable.

Interest Expense

Interest expense decreased $0.1 million for fiscal 2019 to $0.1 million compared to $0.2 million in the prior year due to a decrease in outstanding principal balance of senior convertible notes as a

result of conversions during the third quarter of fiscal 2018.

Amortization and Depreciation Expense

Amortization and depreciation expense decreased $0.4 million to $0.5 million in fiscal 2019 compared to $0.9 million in fiscal 2018 primarily as a result of lower depreciation attributable to fewer Company-owned

Provision for Income Tax

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax

planning strategies.

The Company has assessed whether the valuation allowance should be maintained 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 considered both positive and negative evidence related to the likelihood of realization of deferred tax assets.

Future sources of taxable income were also considered in determining the amount of the recorded valuation

Based on the Company's review of this evidence, management determined it was appropriate to maintain the existing valuation allowance against the Company's deferred tax assets.

Income tax benefit of $0.1 million for fiscal 2019 represents $0.1 million in state and foreign tax expense and a $0.2 million benefit on other deferred taxes.

At the end of tax year ended June 30,

2019, the Company had net operating loss carryforwards totaling $23.9 million that are available to reduce future taxable income and will begin to expire in 2032.

Discontinued Operations

Net losses from the Norco food and supply distribution division are included within discontinued operations.

The discontinuation of the Norco food and supply distribution entity was a strategic shift

for the Company during the second quarter of fiscal 2018, releasing the Company from added credit risk, overhead expense, and direct supply and delivery responsibilities.

Discontinued operations also include losses from leased buildings and operating

losses associated with Company-owned restaurants closed in prior years.

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of liquidity are cash flows from operating activities and proceeds from the sale of securities.

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, share based compensation, and

changes in working capital.

Cash provided by operations was $0.7 million in fiscal 2019 compared to cash used of $3.9 million in fiscal year 2018.

Cash flows from investing activities reflect net proceeds from sale of assets and capital expenditures for the purchase of Company assets.

Cash provided by investing activities during fiscal 2019 of

$0.1 million was primarily attributable to sales of assets of Company-owned Pie Five restaurants including notes receivable issued for fixed asset sales partially offset by capital expenditures for computers and other miscellaneous assets.

compares to cash provided by investing activities of $0.7 million duri ng the fiscal 2018 primarily attr ibutable to sales of assets of closed Company-owned Pie Five restaurants partially offset by capital

expenditures for a new Pie Five unit, computers and other miscellaneous assets.

Cash flows from financing activities generally reflect changes in the Company's borrowings and securities activity during the period.

Net cash provided by financing

activities was $0.1 million and $4.1 million for the fiscal years ended June 30, 2019 and June 24, 2018, respectively.

Cash flows from financing activities for fiscal 2019 were primarily the result of sales of stock in an at-the-market

Cash flows from financing activities for fiscal 2018 were primarily the result of the sale of stock in connection with a shareholder rights offering that closed in September 2017, plus stock sales in the at-the-market offering, partially

offset by the repayment of a $1.0 million short-term promissory note.

On December 5, 2017, the Company entered into an At Market Issuance Sales Agreement with B.

Riley FBR, Inc.

Riley FBR”) pursuant to which the Company may offer and sell shares of its common

stock having an aggregate offering price of up to $5,000,000 from time to time through B.

Riley FBR acting as agent (the “2017 ATM Offering”).

The 2017 ATM Offering is being undertaken pursuant to Rule 415 and a shelf Registration Statement on Form

S-3 which was declared effective by the SEC on November 6, 2017.

Through June 30, 2019, the Company had sold an aggregate of 191,478 shares in the 2017 ATM Offering, realizing aggregate gross proceeds of $0.3 million.

Short Term Loan

On December 22, 2016, the Company obtained a $1.0 million loan from its largest shareholder, Newcastle Partners, LP (“Newcastle”), evidenced by a Promissory Note.

The loan bore interest at 10% per

annum and was originally due and payable on April 30, 2017.

On May 8, 2017, the Company executed an Extended and Restated Promissory Note in favor of Newcastle extending the due date of the short term loan until the earlier of September 1, 2017, or

the Company’s receipt of at least $2.0 million in additional debt or equity capital.

The short term loan was paid in full during fiscal 2018.

Newcastle is an affiliate of the Company’s Chairman, Mark E.

Convertible Notes

On March 3, 2017, the Company completed a registered shareholder rights offering of its 4% Convertible Senior Notes due 2022 (“Notes”).

Shareholders exercised subscription rights to purchase all

30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.

The Notes bear interest at the rate of 4% per annum on the principal or par value of $100 per note, payable annually in arrears on February 15 of each year, commencing February 15, 2018.

payable in cash or, at the Company’s discretion, in shares of Company common stock.

The Notes mature on February 15, 2022, at which time all principal and unpaid interest will be payable in cash or, at the Company’s discretion, in shares of Company

common stock.

The Notes are secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries.

Noteholders may convert their notes to common stock as of the 15 th day of any calendar month, unless the Company sooner elects to redeem the notes.

The conversion price is $2.00 per share

of common stock.

Accrued interest will be paid through the effective date of the conversion in cash or, at the Company’s sole discretion, in shares of Company common stock.

The Company determined that the Notes contained a beneficial conversion feature of $0.1 million since the market price of the Company’s common stock was higher than the effective conversion price of

the notes when issued.

The beneficial conversion feature and the issuance costs of the notes aggregated $0.2 million and were considered a debt discount and are accreted into interest expense using the effective interest method over the debt maturity

During fiscal 2019, $4 thousand in par value of the Notes were converted to common shares.

At the end of fiscal 2019, $1.7 million in par value of the Notes were outstanding, offset by $0.1 million of

unamortized debt issue costs and unamortized debt discounts.

We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily from cash on hand, operating cash flow and sales of securities.

Based on budgeted and

year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 2020 fiscal year.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues,

expenses and related disclosure of contingent liabilities.

The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances.

Estimates and assumptions are reviewed

periodically.

Actual results could differ materially from estimates.

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

Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.

Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions.

The Company records a provision for doubtful receivables to allow for any amounts which

may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends.

Actual realization of accounts receivable could differ materially from the Company’s estimates.

The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable.

Impairment is evaluated based on the sum

of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value.

If impairment is indicated, the carrying value of an impaired asset is reduced to its fair value, based on

discounted estimated future cash flows.

During fiscal year 2019, the Company tested its long-lived assets for impairment and recognized pre-tax, non-cash impairment charges of $0.8 million primarily related to the carrying value of one Pie Five unit.

The Company also had lease charges related to closed units of $0.9 million.

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.

For periods prior to adoption of

Topic 606, franchise fees, area development and foreign master license agreement fees were recognized when we performed our obligations related to such fees, primarily the store opening date.

planning strategies.

The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard.

In assessing the need for a

valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets.

In making such assessment, more weight is given to evidence that can be objectively verified, including

recent losses.

Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance.

The Company 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

As of June 30, 2019 and June 24, 2018, 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.

Accounting Standards Adopted

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”), which supersedes nearly all existing revenue recognition guidance under GAAP, including

industry-specific requirements, and provides companies with a single framework for recognizing revenue from contracts with customers.

This update and subsequently issued amendments require companies to recognize revenue at amounts that reflect the

consideration to which the companies expect to be entitled in exchange for those goods or services at the time of transfer.

Topic 606 requires that we assess contracts to determine each separate and distinct performance obligation.

If a contract has

multiple performance obligations, we allocate the transaction price using our best estimate of the standalone selling price to each distinct good or service in the contract.

The Company adopted Topic 606 using the modified retrospective transition method effective June 25, 2018.

Results for reporting periods beginning June 25, 2018 and after are presented in accordance

with Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605, Revenue Recognition.

A cumulative effect opening adjustment of $1.6 million was recorded as a reduction to retained earnings as of June 25, 2018 to

reflect the impact of adopting Topic 606.

A tax adjustment of $0.4 million was recorded as an increase to retained earnings as of March 25, 2019 to reflect the impact of adopting Topic 606.

The impact of applying Topic 606 for the fiscal year ended

June 30, 2019 was an increase in revenues of $1.4 million and an increase in pre-tax income of $0.5 million.

The adoption of Topic 606 did not impact the recognition and reporting of our two largest sources of revenue:

franchise royalties and supplier and distributor incentives.

The items impacted by the

adoption include the timing of franchise and development revenue recognition and the presentation of advertising funds and supplier convention contributions.

As noted above, an after-tax reduction of $1.6 million was recorded to retained earnings to reflect the cumulative impact of adopting Topic 606.

This is comprised of $1.3 million related to domestic

franchise and renewal fees, $0.2 million related to domestic area development fees and $0.3 million related to international development and franchise master license fees partially offset by $0.2 million in deferral of contract-related expenses.

The following chart presents the specific line items impacted by the cumulative adjustment to opening retained earnings:

(In thousands, except share amounts)

Balance Sheet

June 25, 2018

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable, less allowance for bad debts of $158

Other receivable

Notes receivable

Income tax receivable

Property held for sale

Deferred contract charges

Prepaid expenses and other

Total current assets

LONG-TERM ASSETS

Property, plant and equipment, net

Intangible assets definite-lived, net

Long-term notes receivable

Deferred tax asset, net

Long term deferred contract charges

Deposits and other

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable - trade

Accounts payable - lease termination impairments

Accrued expenses

Deferred rent

Deferred revenues

Total current liabilities

LONG-TERM LIABILITIES

Convertible notes

Deferred rent, net of current portion

Deferred revenues, net of current portion

Other long-term liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3)

SHAREHOLDERS' EQUITY

Common stock, $.01 par value;

authorized 26,000,000 shares;

issued 22,166,674 shares outstanding 15,047,470 shares

Additional paid-in capital

Accumulated deficit

Treasury stock at cost

Shares in treasury:

Total shareholders' equity

Total liabilities and shareholders' equity

The following charts present the specific line items impacted by the application of Topic 606 in fiscal 2019.

(In thousands, except share amounts)

Balance Sheet

Without Adoption

CURRENT ASSETS

Cash and cash equivalents

Accounts receivable, less allowance for bad debts of $209

Other receivable

Notes receivable, less allowance of bad debt of $916

Income tax receivable

Property held for sale

Deferred contract charges

Prepaid expenses and other

Total current assets

LONG-TERM ASSETS

Property, plant and equipment, net

Intangible assets definite-lived, net

Long-term notes receivable

Deferred tax asset, net

Long term deferred contract charges

Deposits and other

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable - trade

Accounts payable - lease termination impairments

Accrued expenses

Deferred rent

Deferred revenues

Total current liabilities

LONG-TERM LIABILITIES

Convertible notes

Deferred rent, net of current portion

Deferred revenues, net of current portion

Other long-term liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3)

SHAREHOLDERS' EQUITY

Common stock, $.01 par value;

authorized 26,000,000 shares;

issued 22,208,141 outstanding 15,090,837

Additional paid-in capital

Accumulated deficit

Treasury stock at cost

Shares in treasury:

Total shareholders' equity

Total liabilities and shareholders' equity

Fiscal Year Ended

Income Statement

Without Adoption

COSTS AND EXPENSES:

Cost of sales

General and administrative expenses

Franchise expenses

Gain on sale of assets

Impairment of long-lived assets and other lease charges

Interest expense

Depreciation and amortization expense

Total costs and expenses

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES

Income tax benefit

LOSS FROM CONTINUING OPERATIONS

Loss from discontinued operations, net of taxes

INCOME PER SHARE OF COMMON STOCK - BASIC:

Loss from continuing operations

Loss from discontinued operations

INCOME PER SHARE OF COMMON STOCK - DILUTED:

Loss from continuing operations

Loss from discontinued operations

Weighted average common shares outstanding - basic

Weighted average common and potential dilutive common shares outstanding

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases.

ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most

leases on their balance sheets.

The new lease standard is effective for public companies for fiscal years, (including interim periods therein), beginning after December 15, 2018.

Application of ASU 2016-02 will be required beginning in the first

quarter of our fiscal 2020.

Early adoption of ASU 2016-02 as of its issuance is permitted.

This new guidance requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with

an option to use certain transition relief.

The Company believes this will have a material impact on the financial statements as it relates to its corporate office lease and various lease obligations for store locations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity