What changed in this filing

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Item 1. Financial Statements

2020-11-12 compared with 2020-06-29 · 130 added, 623 removed, 309 unchanged (71% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 27 ,

September 29 ,

COSTS AND EXPENSES:

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Franchise expenses

Loss (gain) on sale of assets

Gain on sale of assets

Impairment of long-lived assets and other lease charges

Bad debt expense (recovery)

Interest expense

1 unchanged sentence

Total costs and expenses

INCOME (LOSS) BEFORE TAXES

INCOME BEFORE TAXES

Income tax expense

NET INCOME (LOSS)

INCOME (LOSS) PER SHARE OF COMMON STOCK - BASIC:

INCOME (LOSS) PER SHARE OF COMMON STOCK - DILUTED:

INCOME PER SHARE OF COMMON STOCK - BASIC:

INCOME PER SHARE OF COMMON STOCK - DILUTED:

Weighted average common shares outstanding - basic

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(In thousands, except share amounts)

September 27 ,

CURRENT ASSETS

Cash and cash equivalentsa

Cash and cash equivalents

Restricted cash

Accounts receivable, less allowance for bad debts of $77 and $269, respectively

Notes receivable, less allowance for bad debt of $916 and $916, respectively

Income tax receivable

Property held for sale

Notes receivable

Deferred contract charges

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Intangible assets definite-lived, net

Long-term notes receivable

Deferred tax asset, net

Notes receivable, net of current portion

Long-term deferred contract charges

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Accrued expenses

Deferred rent

Operating lease liability, current

3 unchanged sentences

Convertible notes

Deferred rent, net of current portion

Operating lease liability, net of current portion

2 unchanged sentences

Total liabilities

COMMITMENTS AND CONTINGENCIES (SEE NOTE 5)

COMMITMENTS AND CONTINGENCIES (SEE NOTE D)

SHAREHOLDERS’ EQUITY

16 unchanged sentences

Balance, June 30, 2019

ASC 606 cumulative adjustment

Stock compensation expense

Issuance of common stock

Balance, September 23, 2018

Stock compensation expense

Equity issue cost - ATM Offering

Balance, December 23, 2018

Stock compensation expense

Conversion of senior notes, net

Equity issue cost - ATM offering

Balance, March 24, 2019

Balance, September 29, 2019

Treasury Stock

Balance, June 28, 2020

Conversion of senior notes, net

Equity issue costs - ATM offering

Balance, September 27, 2020

Stock compensation expense

Issuance of common stock

Equity issue costs - ATM Offering

Balance, December 29, 2019

Stock compensation expense

Issuance of common stock

Equity issue costs - ATM Offering

Balance, March 29, 2020

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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(In thousands)

Nine Months Ended

Three Months Ended

September 27 ,

September 29 ,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net income to cash provided by (used in) operating activities:

Adjustments to reconcile net income to cash (used in) provided by operating activities:

Impairment of fixed assets and other assets

Stock compensation expense

Depreciation and amortization

Amortization of operating lease asset

Amortization of intangible assets definite-lived

Amortization of operating right of use assets

Amortization of debt issue costs

1 unchanged sentence

Provision for bad debt

Provision for bad debt (notes receivable)

Deferred income tax

1 unchanged sentence

Accounts receivable

Operating notes receivable

Prepaid expenses, deposits and other, net

Deferred revenue

Notes receivable

Deferred contract charges

Prepaid expenses and other

Deposits and other

Accounts payable – trade

Accounts payable - lease termination impairments

Accrued expenses

Operating lease liability

Accrued expenses, deferred rent and other

Deferred revenue

Deferred rent and other

Cash (used in) provided by operating activities

1 unchanged sentence

Payments received on notes receivable from fixed asset sales

Proceeds from sale of assets

Purchase of property, plant and equipment

Cash provided by investing activities

Cash (used in) provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of stock

Equity issuance costs

Cash provided by financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Cash (used in) financing activities

Net (decrease)/increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

2 unchanged sentences

Conversion of notes to common shares

Operating lease right of use assets at adoption

Operating lease liability at adoption

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”) operates and 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, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”.

The accompanying condensed consolidated financial statements of Rave Restaurant Group, Inc.

(the "Company") have been prepared without audit pursuant to the rules and regulations of the Securities and

Exchange Commission (“SEC”).

have been prepared without audit pursuant to the rules and regulations of the

Securities and Exchange Commission (“SEC”).

Certain information and footnote disclosures normally included in the financial statements have been omitted pursuant to such rules and regulations.

The unaudited condensed consolidated financial statements should be read

in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

The unaudited condensed consolidated financial statements

should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28,

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of

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Results of operations for the fiscal periods presented are not necessarily indicative of fiscal year-end results.

Summary of Significant Accounting Policies

Note A - Summary of Significant Accounting Policies

Principles of Consolidation

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All appropriate intercompany balances and transactions have been

Reclassification

Certain prior year amounts have been reclassified to conform with current year presentation.

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.

Restricted cash of $0.2 million at September 27, 2020 and June 28, 2020 is omitted from cash and cash equivalents and is included in current assets.

The restricted cash is held in an interest-bearing

money market account and is restricted pursuant to a letter of credit for an insurance claim dating back to the mid-1980’s.

Fiscal Quarters

The three and nine month periods ended March 29, 2020 and March 24, 2019 each contained 13 weeks and 39 weeks, respectively.

The three month periods ended September 27, 2020 and September 29, 2019 each contained 1 3 weeks.

Use of Management Estimates

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Revenue from restaurant sales is recognized when food and beverage products are sold in Company-owned restaurants.

The Company reports revenue net of sales taxes collected from customers and remitted

to governmental taxing authorities.

The Company reports revenue net of sales taxes collected from customers and remitted to

governmental taxing authorities.

Franchise Revenues

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Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign master license agreements.

Area development exclusivity fees

are included in deferred revenue in the Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement.

Area development exclusivity fees are

included in deferred revenue in the Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement.

Area development exclusivity fees that include rights to subfranchise are

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Three Months Ended

Restaurant sales

Franchise royalties

Supplier and distributor incentive revenues

Franchise license fees

Area development fees and foreign master license fees

Advertising funds

Supplier convention funds

Rental income

Nine Months Ended

September 27 ,

September 29 ,

Restaurant sales

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The Company accounts for stock options using the fair value recognition provisions of the authoritative guidance on share-based payments.

The Company uses the Black-Scholes formula to estimate the

value of stock-based compensation for options granted to employees and directors and expects to continue to use this acceptable option valuation model in the future.

The Company uses the Black-Scholes formula to estimate the value

of stock-based compensation for options granted to employees and directors and expects to continue to use this acceptable option valuation model in the future.

The authoritative guidance also requires the benefits of tax deductions in excess of

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performance criteria is deemed probable, with the amount of the expense recognized based on the best estimate of the ultimate achievement level.

Adoption of ASU 2014-09, “Revenue from Contracts with Customers”

The Company adopted ASU 2014-09 and Topic 606 using the modified retrospective transition method effective June 25, 2018.

A cumulative effect 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.

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.

Cumulative adjustment from adoption

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 was 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.

Adoption of ASC 842, “Leases”

Note B - Adoption of ASC 842, “Leases”

In February 2016, FASB issued Accounting Standards Codification 842, Leases (“ASC 842”) which requires an entity to recognize a right of use asset and lease liability for all leases.

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assets and a 64% change to total liabilities.

The impact of adoption of this new standards update is as follows (in thousands):

The impact of adoption of this new standards update was as follows (in thousands):

Reclassification (1)

Total Adjustment

Balance Sheet:

Operating lease right of use assets

1 unchanged sentence

Operating lease liabilities - long-term

(1) As of June 30, 2019, the Company had $132 thousand recorded within deferred rent for lease incentives incurred at the inception of the affected leases and $302 thousand in deferred rent tenant

improvements.

As of June 30, 2019, the Company had $132 thousand recorded within deferred rent for lease incentives incurred at the inception of the affected leases and $302 thousand in deferred rent tenant improvements.

Upon adoption of the new standards update, these lease incentives were included within the lease liability.

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The Company does not currently have any finance leases.

The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right of use asset and a corresponding lease liability.

use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Short-term leases that have an initial term of one year or

less are not capitalized but are disclosed below.

Short-term lease costs exclude expenses related to leases with a lease term of one month or less.

The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right of use asset and a corresponding operating lease

Right of use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liability represent the Company’s obligation to make lease payments arising from the lease.

Short-term leases that have an

initial term of one year or less are not capitalized but are disclosed below.

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.

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 is recognized on a

straight-line basis over the lease term.

Nature of Leases

28 unchanged sentences

Leases typically do not provide an implicit rate.

Accordingly, the Company is required to use incremental borrowing rate in determining the present value of lease payments based on the information

Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information

available at commencement date.

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If the franchisee abandons the lease and fails to meet the lease’s financial obligations, the lessor may assign the lease to the Company for the remainder of the term.

If the Company does not expect to assign the abandoned

lease to a new franchisee within 12 months, the lease will be considered an operating lease and a right-of-use asset and liability will be recognized.

If the Company does not expect to assign the

abandoned lease to a new franchisee within 12 months, the lease will be considered an operating lease and a right-of-use asset and liability will be recognized.

Practical Expedients and Accounting Policy Elections

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which the obligation for those payments is incurred.

The components of total lease expense for the nine months ended March 29, 2020, the majority of which is included in general and administrative expense, are as follows (in thousands):

Nine Months Ended

The components of total lease expense for the three months ended September 27, 2020 , the majority of which is included in general and

administrative expense, are as follows (in thousands):

Three Months Ended

September 27, 2020

Operating lease cost

2 unchanged sentences

Supplemental cash flow information related to operating leases is included in the table below (in thousands):

Nine Months Ended

Three Months Ended

September 27, 2020

Cash paid for amounts included in the measurement of lease liabilities

Supplemental balance sheet information related to operating leases is included in the table below (in thousands):

Operating lease right of use asset, net

Operating Lease liability - current

Operating lease liability - long-term

Weighted average remaining lease term and weighted average discount rate for operating leases are as follows:

September 27, 2020

Weighted average remaining lease term

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Total operating lease liability

Stock Purchase Plan

Note C - 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 of up to 1,016,000 shares of its common stock in the open

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Stock Purchase Plan does not have an expiration date.

There were no stock purchases in the fiscal quarters ended March 29, 2020 or March 24, 2019.

Commitments and Contingencies

There were no stock purchases in the fiscal quarters end ed September 27, 2020 or September 29, 2019.

Note D - Commitments and Contingencies

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

2 unchanged sentences

decided in a manner that is unfavorable to the Company.

Stock-Based Compensation

Note E - Stock-Based Compensation

Stock Options:

For the fiscal quarters ended March 29, 2020 and March 24, 2019, the Company did not recognize any stock-based compensation expense related to stock options.

As of March 29, 2020, there was no

unamortized stock-based compensation expense related to stock options.

For the fiscal quarters ended September 27, 2020 and September 29, 2019, the

Company did not recognize any stock-based compensation expense related to stock options.

As of September 27, 2020 , there was no unamortized stock-based compensation expense related to stock

The following table summarizes the number of shares of the Company’s common stock subject to outstanding stock options:

Nine Months Ended

March 29, 2020

March 24, 2019

Three Months Ended

September 27 ,

September 29 ,

Outstanding at beginning of year

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Restricted Stock Units:

For the three and nine months ended March 29, 2020, the Company had stock-based compensation credit of $19 thousand and $104 thousand, respectively, related to RSU’s.

For the three and nine months ended March 24, 2019, the Company had stock-based compensation expense of $0.1 million and $0.4 million, respectively.

As of March 29, 2020, unamortized stock-based compensation expense related to RSU’s was $9 thousand.

A summary of the status of restricted stock units as of March 29, 2020, and changes during the nine months then ended is presented below:

Number of Restricted Stock Units

Unvested at June 30, 2019

Unvested at March 29, 2020

Earnings per Share (EPS)

The following table shows the reconciliation of the numerator and denominator of the basic EPS calculation to the numerator and denominator of the diluted EPS calculation (in

thousands, except per share amounts).

(In thousands, except per share amounts)

For the three months ended September 27, 2020 and September 29, 2019, the Company had no

stock-based compensation expenses related to RSU’s.

As of September 27, 2020, there was no unamortized stock-based compensation expense related to RSU’s.

Note F - Earnings per Share (EPS)

The following table shows the reconciliation of the numerator and denominator of the basic EPS calculation to the numerator and denominator of the diluted EPS calculation (in thousands, except per share

Three Months Ended

Nine Months Ended

Net income (loss) available to common stockholders

Interest saved on convertible notes at 4%

Adjusted net income (loss)

September 27 ,

September 29 ,

Net income available to common stockholders

Weighted average common shares

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Net income per common share

For the three and nine months ended March 29, 2020, options to purchase 216,550 shares of common stock at exercise prices from $2.71 to $13.11 were excluded from the computation of diluted EPS because

their inclusion would have been anti-dilutive.

For the three and nine months ended March 24, 2019, options to purchase 288,056 shares of common stock at exercise prices ranging from $1.55 to $13.11 were excluded from the

computation of diluted EPS because their inclusion would have been anti-dilutive.

For the nine months ended March 29, 2020, the Company recorded an income tax expense of $4.1 million including federal deferred tax expense of $4.1 million and state deferred tax

expense of $12 thousand and $11 thousand in current state taxes.

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.

For the quarter ending March 29, 2020, it was determined that the valuation allowance on deferred tax assets should be increased by $4.3 million resulting in a full

valuation allowance.

As of March 29, 2020, the Company reflects $6.7 million of deferred tax assets and a valuation allowance of $6.7 million.

The Company will continue to review the need for future

adjustments to the valuation allowance.

Segment Reporting

The Company has three reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments

of an Enterprise and Related Information:

For the three months ended September 27, 2020, options to purchase 206,750 shares of common stock at exercise prices from $2.71 to $13.11 were excluded from

the computation of diluted EPS because their inclusion would have been anti-dilutive.

For the three months ended September 29, 2019, options to purchase 206,750 shares of common stock at exercise prices ranging from $2.71 to $13.11 were excluded from

the computation of diluted EPS because their inclusion would have been anti-dilutive.

Note G - Income Taxes

For the three months ended September 27, 2020, the Company recorded income tax expense of $2 thousand, all of which was attributable to current state taxes.

The Company utilized net operating loss carryforwards to offset

federal taxes.

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

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 the recorded valuation allowance.

As of September 27, 2020, the Company had established a full valuation allowance of $6.5 million against its deferred tax assets.

The Company will continue to review the need for an

adjustment to the valuation allowance.

Note H - Segment Reporting

The Company has three reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise

and Related Information:

(1) Pizza Inn Franchising, (2) Pie Five Franchising and (3) Company-Owned Restaurants.

These segments are a result of differences in the nature of the products and services sold.

Corporate administration costs,

which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments.

Corporate administration costs, which include,

but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments.

Other revenue consists of non-recurring items.

The Pizza Inn and Pie Five Franchising segments establish franchisees, licensees and territorial rights.

Revenue for this segment is primarily derived from franchise royalties,

franchise license fees, sale of area development and foreign master license rights, incentive payments from third party suppliers and distributors, advertising funds, and supplier convention funds.

Assets for these segments include equipment, furniture

and fixtures.

Revenue for this segment is primarily derived from franchise royalties, franchise license fees,

sale of area development and foreign master license rights, incentive payments from third party suppliers and distributors, advertising funds, and supplier convention funds.

Assets for these segments include equipment, furniture and fixtures.

The Company-Owned Restaurant segment includes sales and operating results for all Company-owned restaurants.

Assets for this segment include equipment, furniture and fixtures for the

Company-owned restaurants.

Assets for this segment include equipment, furniture and fixtures for the Company-owned

Revenue for corporate administration and other consists of rental income and interest income.

Assets primarily include cash and short-term investments, as well as furniture and

fixtures located at the corporate office and trademarks and other intangible assets.

Assets primarily include cash and short-term investments, as well as furniture and fixtures located at the

corporate office and trademarks and other intangible assets.

All assets are located within the United States.

Summarized in the following table are net sales and operating revenues, depreciation and amortization expense, and income before taxes, for the Company's reportable segments as of the three months and

nine months ended March 29, 2020 and March 24, 2019 (in thousands):

Summarized in the following table are net sales and operating revenues, depreciation and amortization expense, and income before taxes, for the Company’s reportable segments as of the three months end ed September 27, 2020 and September 29, 2019 (in thousands):

Three Months Ended

Nine Months Ended

September 27 ,

September 29 ,

Net sales and operating revenues:

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Consolidated total

Subsequent Events

On April 13, 2020, the Company received the proceeds from a loan in the amount of $656,830 (the “PPP Loan”) from JPMorgan Chase Bank, N.A.

(the “Lender”) pursuant to the Paycheck Protection Program

(the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S.

Small Business Administration (“SBA”).

The PPP Loan matures on April 10, 2022 and bears interest at a rate of 0.98% per annum.

November 10, 2020, the Company is required to pay the Lender equal monthly payments of principal and interest as necessary to fully amortize by April 10, 2022 the principal amount outstanding on the PPP Loan as of October 10, 2020.

The Company may

prepay the PPP Loan at any time prior to maturity with no prepayment penalties.

The PPP Loan is evidenced by a promissory note dated April 10, 2020, which contains various certifications and agreements related to the PPP, as well customary default and

other provisions.

The PPP Loan is unsecured by the Company and is guaranteed by the SBA.

All or a portion of the PPP Loan may be forgiven by the SBA upon application by the Company accompanied by documentation of

expenditures in accordance with SBA requirements under the PPP.

In the event all or any portion of the PPP Loan is forgiven, the amount forgiven will be applied to outstanding principal.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q

and in our Annual Report on Form 10-K for the year ended June 30, 2019 and may contain certain forward-looking statements that are based on current management expectations.

Generally, verbs in the future tense and the words “believe,” “expect,”

“anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements.

Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our

customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results.

Our actual results could differ materially from our

expectations.

Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our

Annual Report on Form 10-K for the year ended June 30, 2019.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

The forward-looking statements

contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect

events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Results of Operations

(“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, 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.

March 29, 2020, Company-owned, franchised and licensed units consisted of the following:

Three Months Ended March 29, 2020

(in thousands, except unit data)

Domestic Franchised/Licensed

Company-Owned

Total Domestic Units

International Franchised

Nine Months Ending March 29, 2020

(in thousands, except unit data)

Domestic Franchised/Licensed

Company-Owned

Total Domestic Units

International Franchised

Domestic units are located in 22 states predominantly situated in the southern half of the United States.

International units are located in seven foreign countries.

Basic net loss increased $0.28 per share to $0.30 per share for the three months ended March 29, 2020, compared to basic net loss of $0.02 per share in the comparable period in the prior

The Company had net loss of $4.5 million for the three months ended March 29, 2020 compared to net loss of $0.3 million in the comparable period in the prior fiscal year, on revenues of $2.7 million for the three months ended March 29,

2020 compared to $3.1 million in the comparable period in the prior fiscal year.

The decline in revenue was primarily due to decreases in restaurant sales, franchise royalties and franchise license fees partially offset by an increase in advertising

The increased net loss for the three months ended March 29, 2020, compared to the comparable period of the prior year was primarily the result of a $4.1 million addition to the reserve against net deferred tax assets.

Basic net income declined $0.29 per share for the nine months ended March 29, 2020, compared to the comparable period in the prior fiscal year.

The Company had net loss of $4.3 million for the nine

months ended March 29, 2020 compared to net income of $0.1 million in the comparable period in the prior fiscal year, on revenues of $8.4 million for the nine months ended March 29, 2019 compared to $9.3 million in the comparable period in the prior

The decline in revenue was primarily due to decreases in restaurant sales, franchise royalties, supplier incentive revenues and franchise license fees partially offset by increases in advertising funds and rental income.

The increased net

loss for the nine months ended March 29, 2020, compared to the comparable period of the prior year was primarily the result of a $4.1 million addition to the reserve against net deferred tax assets taken during the latest fiscal quarter.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus (COVID-19) as a pandemic, and the disease has spread rapidly throughout the United States and the world.

Federal, state and local responses to the COVID-19 pandemic, as well as our internal efforts to protect customers, franchisees and employees, have severely disrupted our business operations.

Most of the domestic Pizza Inn buffet restaurants and Pie

Five restaurants are in areas that have been subject to “shelter-in-place” and social distancing restrictions prohibiting in-store sales and, therefore, have been limited to carry-out and/or delivery orders.

In some areas, these restrictions have also

limited non-essential movement outside the home, which has discouraged or precluded even carry-out orders.

Further, the COVID-19 pandemic has precipitated significant job losses and a national economic downturn that typically impacts the demand for

restaurant food service.

Although most of our domestic restaurants have continued to operate under these conditions, two domestic franchised Buffet Units and 11 domestic franchised Pie Five Units have closed at least temporarily since restrictions

were announced.

The closure of one Company-owned Pie Five restaurant in January 2020 was unrelated to the COVID-19 outbreak but the quick closure of a Pie Five Unit recently acquired from a franchisee was accelerated by the pandemic.

Due to the timing of events, the COVID-19 pandemic had only a moderate impact on our operations during the three and nine months ended March 29, 2020.

However, we expect a more significant adverse

impact on our results of operations and liquidity during the fourth quarter of fiscal 2020 and continuing into fiscal 2021.

Operational disruptions have resulted in dramatically reduced aggregate in-store retail sales at Buffet Units and Pie Five

Units, modestly offset by increased aggregate carry-out and delivery sales.

The decreased aggregate retail sales have correspondingly decreased supplier rebates and franchise royalties payable to the Company.

Although we have furloughed certain

employees, reduced base salary by 20% for all remaining employees and otherwise reduced expenses, future results of operations are likely to be materially adversely impacted.

As restrictions to in-store dining begin to be eased, we expect that Buffet Units and Pie Five Units will continue to be subject to capacity restrictions for some time as social distancing protocols

remain in place.

Additionally, an outbreak or perceived outbreak of COVID-19 connected to restaurant dining could cause negative publicity directed at any of our brands and cause customers to avoid our restaurants.

We cannot predict how long the

pandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent off-premises dining will continue, or if individuals will be comfortable returning to our Buffet Units and Pie Five Units following social

distancing protocols.

Any of these changes could materially adversely affect the Company’s future financial performance.

However, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended March 29, 2020, decreased $0.2 million compared to the same period of the prior fiscal year.

Year-to-date Adjusted EBITDA decreased to $0.4 million compared to $0.7 million in

the prior fiscal year.

The following table sets forth a reconciliation of net income to Adjusted EBITDA for the periods shown (in thousands):

RAVE RESTAURANT GROUP, INC.

ADJUSTED EBITDA

(In thousands)

Three Months Ended

Nine Months Ended

Interest expense

Depreciation and amortization

Stock compensation expense (income)

Loss (gain) on sale/disposal of assets

Impairment of long-lived assets and other lease charges

Franchisee default and closed store revenue

Closed and non-operating store costs

Adjusted EBITDA

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.

Three Months Ended

Nine Months 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

Total Pizza Inn domestic retail sales decreased $2.3 million, or 10.5%, for the three months ended March 29, 2020 when compared to the same period of the prior year.

Pizza Inn domestic comparable

store retail sales decreased by $1.6 million, or 7.8%, for the three months ended March 29, 2020 when compared to the same period of the prior year.

Total Pizza Inn domestic retail sales decreased $2.8 million, or 4.3%, for the nine months ended March 29, 2020 when compared to the same period of the prior year.

Pizza Inn domestic comparable store

retail sales decreased by $0.7 million, or 1.2%, for the nine months ended March 29, 2020 when compared to the same period of the prior year.

The following chart summarizes Pizza Inn unit activity for the three and nine months ended March 29, 2020:

Three Months Ended March 29, 2020

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

International Units (all types)

Nine Months Ending March 29, 2020

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

International Units (all types)

There was a net decrease of one domestic Pizza Inn unit during the three months ended March 29, 2020.

We believe that the domestic unit count will increase modestly in future periods.

quarter, the number of international Pizza Inn units increased by a net three units.

We also expect international units to increase modestly in future periods.

There was a net decrease of three units in the total domestic Pizza Inn unit count during the nine months ended March 29, 2020.

The number of international Pizza Inn units decreased by eleven in the

nine months ended March 29, 2020 due to closure of underperforming units in the Middle East during the first quarter of fiscal 2020.

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.

Three Months Ended

Nine Months 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 system-wide retail sales decreased $3.8 million, or 40.8%, for the three months ended March 29, 2020 when compared to the same period of the prior year.

Compared to the same fiscal quarter

of the prior year, average units open in the period decreased from 64 to 43.

Comparable store retail sales decreased by $1.3 million, or 21.4%, during the third quarter of fiscal 2020 compared to the same period of the prior year.

Pie Five system-wide retail sales decreased $9.4 million, or 30.1%, for the nine month period ended March 29, 2020 when compared to the same period of the prior year.

Year-to-date fiscal 2020

compared to the year-to-date of the prior year, average units open in the period decreased from 68 to 50.

Comparable store retail sales decreased by $3.2 million, or 14.4%, during the nine month period ended March 29, 2020 compared to the same

period of the prior fiscal year.

The following chart summarizes Pie Five Unit activity for the three and nine months ended March 29, 2020:

Three Months Ended March 29, 2020

Domestic - Franchised

Domestic - Company-owned

Total Domestic Units

Nine Months Ending March 29, 2020

Domestic - Franchised

Domestic - Company-owned

Total Domestic Units

The net decreases of Pie Five units during the three and nine months ended March 29, 2020 were primarily the result of the closure of poor-performing stores.

We believe the net closure of Pie Five

units will continue in the near term and eventually reverse in future periods.

Pie Five - Company-Owned Restaurants

Three Months Ended

Nine Months 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 before taxes

Allocated marketing and advertising expenses

Depreciation/amortization expense

Impairment, other lease charges and non-operating store costs

Restaurant operating cash flow

Average weekly sales for Company-owned Pie Five Units decreased $3,526, or 28.1%, to $9,034 for the three months ended March 29, 2020 compared to $12,560 for the same period of the prior fiscal year.

Company-owned Pie Five restaurant operating cash flow decreased $0.1 million during the third quarter of fiscal 2020 compared to the same period of prior year.

Loss before taxes for Company-owned Pie Five stores increased $0.2 million for the three

months ended March 29, 2020 compared to the same period of the prior year.

The increased loss was primarily the result of the closure of all remaining Company-owned stores during the period.

Average weekly sales for Company-owned Pie Five Units decreased $2,343, or 22.4%, to $8,108 for the nine months ended March 29, 2020 compared to $10,451 for the same period of the prior fiscal year.

Company-owned Pie Five restaurant operating cash flow decreased $65 thousand during the nine month period ended March 29, 2020 compared to the same period of prior year.

Loss before taxes for Company-owned Pie Five stores increased $0.2 million for

the nine months ended March 29, 2020 compared to the same period of the prior year.

The increased loss was primarily the result of the closure of all remaining Company-owned stores during the period partially offset by reduced deprecation and other

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, severance, gain/loss on sale of assets, costs related to impairment and other lease charges, discontinued operations,

franchisee default and closed store revenue/expense, 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.

“System-wide retail sales” represents combined retail sales for franchisee and Company-owned restaurants for a specified brand.

“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) operations management and extraordinary

expenses, (4) impairment and other lease charges, and (5) 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.

“Franchisee default and closed store revenue/expense” represents the net of accelerated revenues and costs attributable to defaulted area development agreements and closed franchised stores.

Financial Results

The Company defines its operating segments as Pizza Inn Franchising, Pie Five Franchising and Company-Owned Restaurants.

The following is additional business segment information for the three and

nine months ended March 29, 2020 and March 24, 2019 (in thousands):

Three Months Ended March 29, 2020

Company-Owned

Fiscal Quarter Ended

Franchise and license revenues

Restaurant sales

Rental income

Interest income and other

Total revenues

COSTS AND EXPENSES:

Cost of sales

General and administrative expenses

Franchise expenses

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) BEFORE TAXES

Nine Months Ending March 29, 2020

Company-Owned

Fiscal Year-to-Date

Franchise and license revenues

Restaurant sales

Rental Income

Interest income and other

Total revenues

COSTS AND EXPENSES:

Cost of sales

General and administrative expenses

Franchise expenses

Loss (gain) 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) BEFORE TAXES

Revenues are derived from franchise royalties, franchise license fees, supplier and distributor incentives, advertising funds, area development exclusivity fees and foreign master license fees,

supplier convention funds, and sales by Company-owned restaurants.

The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, and the

products sold to franchisees through third-party food distributors .

Total revenues for the three month period ended March 29, 2020 and for the same period in the prior fiscal year were $2.7 million and $3.1 million, respectively.

The decrease in total revenues was driven by a reduction

in Pie Five franchise and license revenues and lower sales from Company-owned restaurants partially offset by an increase in Pizza Inn franchise and license fees.

Total revenues for the nine month period ended March 29, 2020 and for the same period in the prior fiscal year were $8.4 million and $9.3 million, respectively.

The decrease in total revenues was

driven by a reduction in Pie Five franchise and license revenues and lower sales from Company-owned restaurants partially offset by an increase in Pizza Inn franchise and license fees.

Pizza Inn Franchise Revenues

Pizza Inn franchise and license revenues increased by $0.3 million to $1.9 million for the three month period ended March 29, 2020.

Pizza Inn franchise and license revenues increased to $5.5 million

for the nine month period ended March 29, 2020 from $5.3 million for the same period of the prior fiscal year.

Pie Five Franchise Revenues

Pie Five franchise and license revenues decreased by $0.4 million to $0.7 million for the three month period ended March 29, 2020.

The decrease was primarily driven by decreases in supplier

incentives, domestic royalties and brand advertising fund revenues due to fewer retail stores.

Pie Five franchise and license revenues decreased to $2.5 million for the nine month period ended March 29,

2020 compared to $3.3 million for the same period in the prior fiscal year for the same reason.

Restaurant Sales

Restaurant sales, which consist of revenue generated by Company-owned restaurants, decreased $0.3 million for the fiscal quarter ended March 29, 2020 compared to the fiscal quarter ended March 24,

In the nine month period ended March 29, 2020, restaurant sales decreased to $0.2 million from $0.5 million in sales for the same period of the prior fiscal year.

In both cases, the decrease was primarily due to closure of all remaining

Company-owned stores during the third quarter of fiscal 2020.

Costs and Expenses:

Cost of Sales - Total

Total cost of sales, which primarily includes food and supply costs, labor, and general and administrative expenses directly related to Company-owned restaurant sales, decreased to $0.1 million for

the three month period ended March 29, 2020 from the $0.4 million in the three month period ended March 24, 2019.

For the nine month period ended March 29, 2020, total cost of sales decreased to $0.4 million from the $0.7 million in the same period

of the prior fiscal year.

The decreases in costs of sales in both three and nine month periods reflect the closure of Company-owned restaurants.

General and Administrative Expenses

Total general and administrative expenses increased $0.1 million to $1.7 million for the three month period ended March 29, 2020 compared to $1.6 million for the same period of the prior fiscal year.

Total general and administrative expenses remained mostly unchanged at $4.6 million for the nine month period ended March 29, 2020 and March 24, 2019.

For the three month period, the increase was primarily the result of increased corporate overhead.

Franchise Expenses

Franchise expenses include general and administrative expenses directly related to the continuing service of domestic and international franchises.

Franchise expenses remained stable at $0.9 million

for the three month period ended March 29, 2020 and March 24, 2019.

Total Franchise expenses decreased to $2.6 million for the nine month period ended March 29, 2020 compared to $2.8 million for the nine month period ended March 24, 2019 primarily

due to a reduction in employees supporting Pizza Inn and Pie Five franchising.

Loss/Gain on Sale of Assets

Loss on sale of assets declined to $18 thousand in the third quarter of fiscal 2020 compared to $0.1 million during the same period of fiscal 2019 due to decreased disposal activity from previously

closed Company-owned restaurants.

Loss on sale of assets was nominal for the nine months ended March 29, 2020 for the same reason.

A gain on sale of assets of $0.3 for the nine months ended March 24, 2019 was primarily attributable to disposal of

equipment from closed Company-owned restaurants which had previously been written down below the ultimate sale price.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges was $0.5 million for the three month period ended March 29, 2020 compared to $0.2 million for the same period in the prior fiscal year.

Impairment of long-lived assets and other lease charges was $0.8 million for the nine month period ended March 29, 2020 compared to $0.4 million for the same period of the prior fiscal year.

For the three and nine month periods ended March 29, 2020,

these charges related to lease termination expenses.

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 for the three and

nine month period ended March 29, 2020, decreased $5 thousand and $172 thousand, respectively, as compared to the comparable periods in the prior fiscal year.

Interest Expense

Interest expense remained stable in the three and nine month period ended March 29, 2020 compared to the same fiscal periods of the prior year.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased to $45 thousand for the third quarter of fiscal 2020 compared to $120 thousand for the same period of the prior year.

Depreciation and amortization expense decreased to

$0.1 million for the nine months ended March 29, 2020, compared to $0.4 million for the same period of the prior year.

In both cases, the decrease was primarily the result of the closure of Company-owned Pie Five Units.

Provision for Income Tax

For the nine months ended March 29, 2020, the Company recorded an income tax expense of $4.1 million including federal deferred tax expense of $4.1 million and state deferred tax expense of $12

thousand and $11 thousand in current state taxes.

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.

For the quarter ending March 29, 2020, it was determined that the valuation allowance on deferred tax assets should be increased by $4.3 million resulting in a full valuation

As of March 29, 2020, the Company reflects $6.7 million of deferred tax assets and a valuation allowance of $6.7 million.

The Company will continue to review the need for future adjustments to the

valuation allowance.

Liquidity and Capital Resources

During the nine month period ended March 29, 2020, our primary source of liquidity was cash flows from operating activities.

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

compensation, and changes in working capital.

Cash used by operating activities was $0.8 million for the nine month period ended March 29, 2020 compared to cash provided of $0.4 million for the nine month

period ended March 24, 2019.

The primary driver of decreased cash flows during the nine month period ended March 29, 2020 was lease termination payments of $1.0 million related to closed Company-owned Pie Five stores.

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

Cash provided by investing activities of $64 thousand

during the nine month period ended March 29, 2020 was primarily attributable to $117 thousand in payments received on notes receivable partially offset by capital expenditures of $53 thousand.

Cash provided by investing activities during the nine

month period ended March 24, 2019 of $93 thousand was primarily attributed $169 thousand from the sale of assets offset by capital expenditures of $76 thousand.

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

Net cash flow provided by financing activities was $10 thousand for the nine

month period ended March 29, 2020 compared to $32 thousand for the nine month period ended March 24, 2019.

Cash flows from financing activities for the nine months ended March 29, 2020 and March 24, 2019 were both primarily due to at-the-market sales

of common stock.

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 March 29, 2020, the Company had sold an aggregate of 205,298 shares in the 2017 ATM Offering, realizing aggregate gross proceeds of $0.3 million.

Although we have furloughed certain employees, reduced base salary by 20% for all remaining employees and otherwise reduced expenses, we expect significantly reduced cash flow

from operations during the fourth quarter of fiscal 2020 and continuing into fiscal 2021 as a result of the COVID-19 pandemic.

However, management believes the cash on hand combined with cash from operations, net proceeds from government loan

programs and proceeds from sales of common stock through the 2017 ATM Offering will be sufficient to fund operations for the next 12 months.

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 15th day of any calendar month, unless the Company sooner elects to redeem the notes.

The conversion price is $2.00 per share of common

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

During the nine month period ended March 29, 2020, $64 thousand in par value of the Notes were converted to common shares.

As of March 29, 2020, $1.6 million in par value of the Notes were

outstanding, offset by $0.1 million of unamortized debt issue costs and unamortized debt discounts.

Critical Accounting Policies and Estimates

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

expenses and related disclosure of contingent liabilities.

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

Estimates and assumptions are reviewed

periodically.

Actual results could differ materially from estimates.

The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and therefore require

subjective judgments.

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

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

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 of the assets compared to their carrying value.

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

estimated future cash flows.

Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and convention contribution

Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement.

Royalties and advertising fund revenues, which are based on a

percentage of franchise retail sales, are recognized as income as retail sales occur.

Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.

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

tax planning strategies.

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

In assessing the need for a

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

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

recent losses.

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

The Company 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 March 29, 2020 and March 24, 2019, 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.

Quantitative and Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.

Note I - Subsequent Events

Subsequent to September 27, 2020, the Company has sold 2,539,682 shares of its common stock at an average sale price of $1.48 per share pursuant to a registered at-the-market offering.

(See Note J to the Company’s Annual Report on Form 10-K for

the fiscal year ended June 28, 2020.) The Company realized aggregate gross proceeds of $3.8 million from these at-the-market sales of common stock.

Net proceeds from the transactions of $3.6 million are accretive to shareholders’ equity.

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-Q

Item 1. Financial Statements