What changed in this filing

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Item 1. Financial Statements

2021-02-04 compared with 2020-11-12 · 142 added, 108 removed, 331 unchanged (43% of the section changed)

4 unchanged sentences

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

COSTS AND EXPENSES:

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Impairment of long-lived assets and other lease charges

Bad debt expense (recovery)

Bad debt expense

Interest expense

2 unchanged sentences

INCOME BEFORE TAXES

Income tax expense

Income tax expense (benefit)

INCOME PER SHARE OF COMMON STOCK - BASIC:

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(In thousands, except share amounts)

September 27 ,

CURRENT ASSETS

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Conversion of senior notes, net

Equity issue cost - ATM offering

Equity issue costs - ATM offering

Balance, September 29, 2019

Stock compensation expense

Issuance of common stock

Equity issue costs - ATM offering

Balance, December 29, 2019

Treasury Stock

2 unchanged sentences

Balance, September 27, 2020

Issuance of common stock

Equity issue costs - ATM offering

Balance, December 27, 2020

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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(In thousands)

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Impairment of fixed assets and other assets

Impairment of long-lived assets and other lease charges

Stock compensation expense

Depreciation and amortization

Amortization of operating right of use assets

Amortization of right of use assets

Amortization of debt issue costs

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Changes in operating assets and liabilities:

Restricted cash

Accounts receivable

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Deferred rent and other

Cash (used in) provided by operating activities

Cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

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Purchase of property, plant and equipment

Cash (used in) provided by investing activities

Cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of stock

Equity issuance costs

Cash (used in) financing activities

Cash (used in) provided by financing activities

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

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Conversion of notes to common shares

Operating lease right of use assets at adoption

Operating lease liability at adoption

Operating lease right of use assets at adoption of ASC 842

Operating lease liability at adoption of ASC 842

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”.

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.

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 28,

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, 2020.

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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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.

Restricted cash of $0.2 million at December 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 month periods ended September 27, 2020 and September 29, 2019 each contained 1 3 weeks.

The three and six month periods ended December 27, 2020 and December 29, 2019 each contained 13 weeks and 26 weeks, respectively.

Use of Management Estimates

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revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that

are collected by the Company from a customer, are excluded from revenue.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction,

that are collected by the Company from a customer, are excluded from revenue.

The following describes principal activities, separated by major product or service, from which the Company generates its revenues:

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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

Franchise revenues consist of 1) franchise royalties, 2) supplier and distributor incentive revenues, 3) franchise license fees, 4) area development exclusivity fees and foreign master license fees,

advertising funds, and 6) supplier convention funds.

5) advertising funds, 6) supplier convention funds, and 7) rental income.

Franchise royalties, which are based on a percentage of franchise restaurant sales, are recognized as sales occur.

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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 that include rights to subfranchise are

amortized as revenue over the term of the contract.

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 amortized as revenue over the term of the contract.

Advertising fund contributions for Pie Five units represent contributions collected where we have control over the activities of the fund.

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For Pie Five, we have determined that we are the principal in these arrangements, and advertising fund contributions and

expenditures are, therefore, reported on a gross basis in the Condensed Consolidated Statements of Income.

In general, we expect such advertising fund contributions and expenditures to be largely offsetting and, therefore, do not expect a significant

impact on our reported income before income taxes.

expenditures are, therefore, reported on a gross basis in the Condensed Consolidated Statements of Operations.

In general, we expect such advertising fund contributions and expenditures to be largely offsetting and, therefore, do not expect a

significant impact on our reported income before income taxes.

Our obligation related to these funds is to develop and conduct advertising activities.

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Three Months Ended

September 27 ,

September 29 ,

Restaurant sales

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Franchise license fees

Area development fees and foreign master license fees

Area development exclusivity fees and foreign master license fees

Advertising funds

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Rental income

Six Months Ended

Restaurant sales

Franchise royalties

Supplier and distributor incentive revenues

Franchise license fees

Area development exclusivity fees and foreign master license fees

Advertising funds

Supplier convention funds

Rental income

Stock-Based Compensation

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

recognized compensation cost to be reported as a financing cash flow.

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 recognized compensation cost to be reported as a financing cash flow.

Compensation cost for restricted stock units (“RSU’s”) is measured as an amount equal to the fair value of the RSU’s on the date of grant and is expensed over the vesting period if achievement of the

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Through the implementation process, the Company evaluated each of its lease arrangements and enhanced its systems to track and calculate additional information required upon adoption of this standards

The adoption had an impact to the Condensed Consolidated Balance Sheet as of July 1, 2019 relating to the recognition of operating lease right of use assets and operating lease liabilities which represented approximately a 30% change to total

assets and a 64% change to total liabilities.

total assets and a 64% change to total liabilities.

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

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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.

Right of use assets represent the Company’s right to use an underlying asset for the lease term and operating 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.

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.

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

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Office agreements are typically structured with non-cancelable terms of one to 10 years.

The Company has concluded that its

office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term.

The Company has concluded that

its office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term.

Upon completion of the primary term, both parties have substantive rights to terminate the lease.

As a result, enforceable rights and

obligations do not exist under the rental agreements subsequent to the primary term.

As a result, enforceable

rights and obligations do not exist under the rental agreements subsequent to the primary term.

Restaurant Space Agreements

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commencement, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise).

Accordingly, we recognize lease payments related to our short-term leases in our

statement of operations on a straight-line basis over the lease term which has not changed from our prior recognition.

To the extent that there are variable lease payments, we recognize those payments in our statement of operations in the period in

which the obligation for those payments is incurred.

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

Accordingly, we recognize lease payments related to our short-term leases in

our statement of operations on a straight-line basis over the lease term which has not changed from our prior recognition.

To the extent that there are variable lease payments, we recognize those payments in our statement of operations in the

period in which the obligation for those payments is incurred.

The components of total lease expense for the six months ended December 27, 2020, the majority of which is included in general and administrative expense, are as follows (in thousands):

Six Months Ended

December 27, 2020

Operating lease cost

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

Three Months Ended

September 27, 2020

Six Months Ended

December 27, 2020

Cash paid for amounts included in the measurement of lease liabilities

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

September 27, 2020

December 27, 2020

Weighted average remaining lease term

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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

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 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 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.

2007 Stock Purchase Plan does not have an expiration date.

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

There were no stock purchases in the fiscal quarters ended December 27, 2020 or December 29, 2019.

Note D - Commitments and Contingencies

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decided in a manner that is unfavorable to the Company.

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 costumers, franchisees and employees, have severely disrupted our business operations.

Most of the domestic Pizza Inn buffet

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

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

In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols,

and enhanced cleaning and disinfecting practices.

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

Although most of our domestic

restaurants have continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic.

The COVID-19 pandemic has resulted in dramatically reduced aggregate in-store retail sales at Buffet Units and Pie Five Units, modestly offset by increased aggregate carry-out

and delivery sales.

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

During the fourth quarter of fiscal 2020, we participated in a government-sponsored loan

We also temporarily furloughed certain employees and reduced base salary by 20% for all remaining employees for the fourth quarter of fiscal 2020, as well as reducing other expenses.

While the Company will remain focused on controlling

expenses, future results of operations are likely to be materially adversely impacted by the pandemic and its aftermath.

We expect that Buffet Units and Pie Five Units will continue to be subject to capacity restrictions for some time as social distancing protocols remain in place.

Additionally,

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

We cannot predict how long the pandemic will last or whether it

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

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.

Note E - Stock-Based Compensation

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

For the fiscal quarters ended December 27, 2020 and December 29, 2019, the Company did not recognize any stock-based compensation expense related to stock options.

As of December 27, 2020, there

was no unamortized stock-based compensation expense related to stock options.

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

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

Outstanding at beginning of year

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Restricted Stock Units:

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.

For the three months ended December 27, 2020 and December 29, 2019, the Company had no stock-based compensation expenses related to RSU’s.

As of December 27, 2020, there was no unamortized

stock-based compensation expense related to RSU’s.

A summary of the status of restricted stock units as of December 27, 2020, and changes during the three months then ended is presented below:

Unvested at June 28, 2020

Unvested at December 27, 2020

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

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)

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

Net income available to common stockholders

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Net income per common share

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.

For the three and six months ended December 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 they were not in-the-money.

For the three and six months ended December 29, 2019, options to purchase 216,550 shares of common stock at exercise prices ranging from $2.71 to $13.11 were excluded from the computation of

diluted EPS because they were not in-the-money.

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.

For the six months ended December 27, 2020, the Company recorded an income tax expense of $4 thousand, all of which was attributable to current state taxes.

The Company utilized net operating

losses 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

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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.

As of December 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

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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.

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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 end ed September 27, 2020 and September 29, 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 and six months ended December 27, 2020 and December 29, 2019 (in thousands):

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

Net sales and operating revenues:

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Consolidated total

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