What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-04 compared with 2020-11-12 · 255 added, 202 removed, 202 unchanged (69% of the section changed)

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 28, 2020 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.

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 28, 2020.

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.

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 28, 2020 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 28, 2020.

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

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

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”.

We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors.

At September 27, 2020, Company-owned, franchised and licensed units consisted of the following:

Three Months Ended September 27, 2020

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”.

We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third

party distributors.

At December 27, 2020, Company-owned, franchised and licensed units consisted of the following:

Three Months Ended December 27, 2020

(in thousands, except unit data)

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International Franchised

Six Months Ending December 27, 2020

(in thousands, except unit data)

Domestic Franchised/Licensed

Company-Owned

Total Domestic Units

International Franchised

Domestic units are located in 21 states predominantly situated in the southern half of the United States.

International units are located in six foreign countries.

Basic net income per common share decreased $0.02 per share to $0.00 per share for the three months ended September 27, 2020,

compared to basic net income of $0.02 per share in the comparable period in the prior fiscal year.

The Company had net income of $76 thousand for the three months ended September 27, 2020 compared to net income of $0.2 million in the comparable

period in the prior fiscal year, on revenues of $1.9 million for the three months ended September 27, 2020 compared to $2.9 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.

These declines and the decreased net income for the three months ended September 27, 2020, co mpared to the comparable period of the prior year were primarily the result of the

effects of the COVID-19 pandemic.

Basic net income per share increased $0.01 per share to $0.01 per share for the three months ended December 27, 2020, compared to the comparable period in the prior fiscal

The Company had net income of $102 thousand for the three months ended December 27, 2020 compared to net income of $14 thousand in the comparable period in the prior fiscal year, on revenues of $2.1 million for the three months ended December

27, 2020 compared to $2.8 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

supplier convention funds.

The $0.1 million increase in net income for the three months ended December 27, 2020, compared to the comparable period of the prior year was the result of a $0.8 million decrease in expenses partially offset by the $0.7

million decrease in revenues.

Basic net income per share declined $0.01 per share to $0.01 per share for the six months ended December 27, 2020, compared to the comparable period in the prior fiscal year.

The Company had net income of $0.2 million for the six months ended December 27, 2020 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $4.0 million for the six months ended December 29, 2019

compared to $5.7 million in the comparable period in the prior fiscal year.

The decline in revenue was primarily due to decreases in restaurant sales, franchise royalties, supplier convention funds and franchise license fees.

The $0.1 million

decrease in net income for the six months ended December 27, 2020 compared to the comparable period of the prior year was primarily the result of the $1.7 million decrease in revenue partially offset by a $1.6 million decrease in expenses.

COVID-19 Pandemic

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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.

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.

1 unchanged sentence

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.

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 program.

(See, “Liquidity and

Capital Resources--PPP Loan,” below.) 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.

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

(See, “Liquidity and Capital Resources--PPP Loan,” below.) 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

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.

Any of these changes

could materially adversely affect the Company’s future financial performance.

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.

Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended September 27, 2020, decreased $0.2 million compared to the same period of the

prior fiscal year.

Adjusted EBITDA for the fiscal quarter ended December 27, 2020, increased $0.2 million compared to the same period of the prior fiscal year.

Year-to-date Adjusted EBITDA

remained steady compared to the same period of the prior fiscal year.

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

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Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

Interest expense

Depreciation and amortization

Gain on sale/disposal of assets

Stock compensation expense

Gain on sale of assets

Impairment of long-lived assets and other lease charges

5 unchanged sentences

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

Pizza Inn Retail Sales - Total Domestic Units

(in thousands, except unit data)

Domestic Units

10 unchanged sentences

Total Domestic Units

Total Pizza Inn domestic retail sales decreased $5.6 million, or 25.5%, for the three months ended September 27, 2020 when compared to the same period of the prior year.

Pizza Inn domestic comparable store retail sales decreased by $4.3 million, or 21.5%, for the three months ended September 27, 2020 when compared to

the same period of the prior year.

We believe that the declines in domestic retail sales and domestic comparable store retail sales were primarily the result of the COVID-19 pandemic.

The following chart summarizes Pizza Inn unit activity for the three months ended September 27, 2020:

Three Months Ended September 27, 2020

Total Pizza Inn domestic retail sales decreased $5.1 million, or 24.6%, for the three months ended December 27, 2020 when compared to the same period of the prior year.

Inn domestic comparable store retail sales decreased by $3.5 million, or 18.4%, for the three months ended December 27, 2020 when compared to the same period of the prior year.

Total Pizza Inn domestic retail sales decreased $10.7 million, or 25.1%, for the six months ended December 27, 2020 when compared to the same period of the prior year.

Inn domestic comparable store retail sales decreased by $7.8 million, or 20.0%, for the six months ended December 27, 2020 when compared to the same period of the prior year.

The following chart summarizes Pizza Inn unit activity for the three and six months ended December 27, 2020:

Three Months Ended December 27, 2020

Domestic Units

4 unchanged sentences

International Units (all types)

There was a net decrease of five domestic Pizza Inn unit during the three months ended September 27, 2020.

We believe the

net closure of Pizza Inn units will continue in the near term and eventually reverse in future periods.

During the quarter, the number of international Pizza Inn units decreased by a net six units.

We expect international units to increase modestly

in future periods.

Six Months Ended December 27, 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 four domestic Pizza Inn units during the three months ended December 27, 2020 and a net decrease of nine units in the total domestic Pizza Inn unit count during the six

months ended December 27, 2020.

During the second quarter of fiscal 2021, the number of international Pizza Inn units remained the same while the number of international Pizza Inn units decreased by six in the six months ended December 27, 2020.

We believe the modest net closure of Pizza Inn units will continue in the near term and eventually reverse in future periods.

We expect international units to increase moderately in future periods.

Pie Five Brand Summary

1 unchanged sentence

Three Months Ended

September 27 ,

September 29 ,

Six Months Ended

(in thousands, except unit data)

Pie Five Retail Sales - Total Units

7 unchanged sentences

Total Domestic Units

Pie Five system-wide retail sales decreased $4.3 million, or 49.0%, for the three months ended September 27, 2020 when compared to the same period of the prior year.

Pie-Five comparable store retail sales decreased by $1.2 million, or 23.3%, for the three months ended September 27, 2020 w hen compared to the

same period of the prior year.

We believe that the decline in Pie Five system-wide retail sales was primarily the result of the COVID-19 pandemic and a lower average number of units open during the period.

Compared to the same fiscal quarter of the

prior year, average units open in the period decreased from 58 to 39.

We believe that the decline in Pie Five comparable store retail sales was also primarily the result of the COVID-19 pandemic.

The following chart summarizes Pie Five Unit activity for the three months ended September 27, 2020:

Three Months Ended September 27, 2020

Pie Five system-wide retail sales decreased $3.2 million, or 42.1%, for the three months ended December 27, 2020 when compared to the same period of the prior year.

the same fiscal quarter of the prior year, average units open in the period decreased from 54 to 37.

Comparable store retail sales decreased by $0.7 million, or 15.5%, during the second quarter of fiscal 2021 compared to the same period of the

Pie Five system-wide retail sales decreased $7.5 million, or 45.8%, for the six month period ended December 27, 2020 when compared to the same period of the prior year.

Year-to-date fiscal 2021 compared to year-to-date of the prior year, average units open in the period decreased from 56 to 46.

Comparable store retail sales decreased by $2.0 million, or 19.6%, during the six month period ended December 27, 2020

compared to the same period of the prior fiscal year.

The following chart summarizes Pie Five Unit activity for the three and six months ended December 27, 2020:

Three Months Ended December 27, 2020

Domestic - Franchised

1 unchanged sentence

Total Domestic Units

The net decrease of 3 Pie Five units during the three months ended September 27, 2020 was 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.

Six Months Ended December 27, 2020

Domestic - Franchised

Domestic - Company-owned

Total Domestic Units

The net decreases of Pie Five units during the three and six months ended December 27, 2020 were primarily the result of the COVID-19 pandemic.

We believe the modest 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

Six Months Ended

(in thousands, except store weeks and average data)

September 27 ,

September 29 ,

Store weeks (excluding partial weeks)

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Restaurant operating cash flow

Average weekly sales for Company-owned Pie Five Units decreased $8,308, or 100%, to zero for the three months ended September 27,

2020 compared to $8,308 for the same period of the prior fiscal year.

Company-owned Pie Five restaurant operating cash flow increased $44 thousand during the first quarter of fiscal

2020 compared to the same period of prior year.

Loss before taxes for Company-owned Pie Five stores decreased $0.1 million for the three months ende d September 27, 2020 compared to the same

period of the prior year.

The decreased loss was primarily the result of the closure of all remaining Company-owned stores during fiscal year 2020.

Average weekly sales for Company-owned Pie Five Units decreased $7.4 million, or 100%, to zero for the three months ended December 27, 2020 compared to the same period of the

prior fiscal year.

Company-owned Pie Five restaurant operating cash flow increased $49 thousand to zero during the second quarter of fiscal 2021 compared to the same period of the prior year.

Loss before taxes for Company-owned Pie Five stores

decreased $0.2 million for the three months ended December 27, 2020 compared to the same period of the prior year.

The increased restaurant operating cash flow and decreased pre-tax loss were primarily the result of the closure of all remaining

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

Average weekly sales for Company-owned Pie Five Units decreased $7.8 million, or 100%, to zero for the six months ended December 27, 2020 compared to the same period of the

prior fiscal year.

Company-owned Pie Five restaurant operating cash flow increased $83 thousand to zero during the six month period ended December 27, 2020 compared to the same period of prior year.

Loss before taxes for Company-owned Pie Five

stores decreased $0.3 million for the six months ended December 27, 2020 compared to the same period of the prior year.

The increased restaurant operating cash flow and decreased pre-tax loss were primarily the results of the closure of all

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

Non-GAAP Financial Measures and Other Terms

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

“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock compensation expense, gain/loss on sale of assets, costs related to impairment and other lease charges,

franchisee default and closed store revenue/expense, and closed and non-operating store costs.

“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, 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.

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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 months ended September 27, 2020 and September 29, 2019 (in thousan ds):

The following is additional business segment

information for the three and six months ended December 27, 2020 and December 29, 2019 (in thousands):

Three Months Ended December 27, 2020

Company-Owned

4 unchanged sentences

Fiscal Quarter Ended

September 27 ,

September 29 ,

September 27 ,

September 29 ,

September 27 ,

September 29 ,

September 27 ,

September 29 ,

September 27 ,

September 29 ,

Franchise and license revenues

8 unchanged sentences

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

Six Months Ended December 27, 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

Gain on sale of assets

Impairment of long-lived assets and other lease charges

Bad debt expense (recovery)

Interest expense

4 unchanged sentences

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 September 27, 2020 an d

for the same period in the prior fiscal year were $1.9 million and $2.9 million, respectively.

The decrease in total revenues was driven by the effects of the COVID-19 pandemic, franchised restaurant closures, and the closures of all remaining

Company-owned restaurants during fiscal 2020.

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

sales and restaurant count, as well as the products sold to franchisees through third-party food distributors .

Total revenues for the three month period ended December 27, 2020 and for the same period in the prior fiscal year were $2.1 million and $2.8 million, respectively.

decrease in total revenues was driven by a reduction in Pie Five franchise and license revenues and lower sales from Company-owned restaurants.

Total revenues for the six month period ended December 27, 2020 and for the same period in the prior fiscal year were $4.0 million and $5.7 million, respectively.

in total revenues was driven by a reduction in Pizza Inn and Pie Five franchise and license revenues, as well as lower sales from Company-owned restaurants.

Pizza Inn Franchise Revenues

Pizza Inn franchise and license revenues decreased by $0.5 million to $1.4 million for the three month period ended September 27,

The decline was driven by decreases in supplier incentives, domestic royalties and brand advertising fund revenues primarily due to the effects of the COVID-19 pandemic.

Pizza Inn franchise and license revenues remained relatively stable at $1.6 million for the three month periods ended December 27, 2020 and December 29, 2019.

franchise and license revenues decreased to $3.0 million for the six month period ended December 27, 2020 from $3.5 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 $0.5 million for the three month period ended September 27,

The decline was driven by decreases in supplier incentives, domestic royalties and brand advertising fund revenues due to fewer retail stores and the effects of the COVID-19

Pie Five franchise and license revenues decreased by $0.6 million to $0.4 million for the three month period ended December

27, 2020 compared to the same period of the prior fiscal year.

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 $0.9 million for the six month period ended December 27, 2020 compared to $1.9 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 $0.1 million for the fiscal quarter ended September 27, 2020 compared to the fiscal quarter ended September 29, 2019 .

The decrease was due to closure of all remaining Company-owned stores during fiscal 2020.

Restaurant sales, which consist of revenue generated by Company-owned restaurants, decreased $0.1 million to zero for the fiscal quarter ended December 27, 2020 compared to the

fiscal quarter ended December 29, 2019.

In the six month period ended December 27, 2020, restaurant sales decreased to zero from $0.2 million in sales for the same period of the prior fiscal year.

In both cases, the decreases were 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, la bor, and general and administrative expenses directly

related to Company-owned restaurant sales, decreased to $78 thousand for the three month period ended September 27, 2020 from the $134 thousand in the three month period ended September 29, 2019.

The decrease in costs of sales in the three month

period reflects the closure of all Company-owned restaurants.

The remaining cost of sales was the result of continuing general and administrative expenses (primarily rent and utilities) attributable to closed stores.

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 $40 thousand to $75 thousand for the three month period ended December 27, 2020 compared to $115 thousand in the three month period ended December 29, 2019.

For the six month period ended December 27, 2020, total cost of sales decreased

$96 thousand to $153 thousand compared to $249 thousand in the same period of the prior fiscal year.

The decreases in costs of sales in both three and six month periods reflect the closure of all remaining Company-owned restaurants during the third

quarter of fiscal 2020.

General and Administrative Expenses

Total general and administrative expenses decreased $0.3 million to $1.1 million for the three month period ended September 27, 2020

compared to $1.4 million for the same period of the prior fiscal year.

The decrease was primarily the result of decreased corporate overhead.

Total general and administrative expenses decreased $0.4 million to $1.2 million for the three month period ended December 27, 2020 compared to $1.6 million for the same period

of the prior fiscal year.

Total general and administrative expenses decreased to $2.3 million for the six month period ended December 27, 2020 compared to $2.9 million for the six month period ended December 29, 2019.

The decreases in general and

administrative expenses during both the three and six month periods were primarily the result of decreased corporate expenses in response to the COVID-19 pandemic.

Franchise Expenses

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

Franchise expenses decreased to $0.5 million for the three month period ended September 27, 2020 compared to $0.9 million for the same period in the prior fiscal year.

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

Franchise expenses decreased

to $0.6 million for the three month period ended December 27, 2020 compared to $0.8 million for the same period of the prior fiscal year.

Franchise expenses decreased to $1.2 million for the six month period ended December 27, 2020 compared to $1.7

million for the six month period ended December 29, 2019.

In both cases, the decreases were primarily due to a reduction in employees supporting franchisees, fewer closed store expenses, and lower convention expense.

Gain on Sale of Assets

Gain on sale of assets declined to zero in the first quarter of fiscal 2021 compared to an $11 thousand gain during the same period of fiscal 2020 due to

decreased disposal activity from previously closed Company-owned restaurants.

Gain on sale of assets remained zero for both the second quarter of fiscal 2021 and the same period of fiscal 2020.

There was sale of assets less than $1 thousand for the

six months ended December 27, 2020 compared to a gain on sale of assets of $11 thousand for the comparable prior year period.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges was $17 thousand for the three month period ended September 27, 2020 compared to

$148 thousand for the same period in the prior fiscal year.

For both three month periods, these charges related to lease termination expenses.

Impairment of long-lived assets and other lease charges was $4 thousand for the three month period ended December 27, 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 $21 thousand for the six month period ended December 27, 2020 compared to $0.3 million for the same period of the prior fiscal year.

For the three and six month periods

ended December 27, 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 month period ended September 27, 2020 , increased $35 thousand as compared to the comparable period in the prior fiscal year.

expense for the three and six month period ended December 27, 2020, increased $52 thousand and $87 thousand, respectively, as compared to the comparable periods in the prior fiscal year.

Interest Expense

Interest expense remained stable in the three month period ended September 27, 2020 compared to the same fiscal period of the prior year.

Interest expense remained relatively stable for the three and six month periods ended December 27, 2020 compared to the same fiscal periods of the prior year.

Depreciation and Amortization Expense

Depreciation and amortization remained stable in the three month period ended September 27, 2020 compared to the same fiscal period of the

Depreciation and amortization expense declined slightly for the three and six months ended December 27, 2020, compared to the same periods of the prior year.

In both cases,

the decrease was primarily the result of the closure of all remaining Company-owned Pie Five Units during the third quarter of fiscal 2020.

Provision for Income Tax

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.

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 strategies.

In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of

deferred tax assets.

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

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.

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 strategies.

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

Future sources of taxable income are also

considered in determining the amount of the recorded valuation allowance.

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 adjustment to the valuation allowance.

Liquidity and Capital Resources

During the three month period ended September 27, 2020, our liquidity remained relatively stable.

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 $7 thousand for the three

month period ended September 27, 2020 compared to cash provided of $132 thousand for the three month period ended September 29, 2019.

The primary driver of decreased cash flows during the three month period

ended September 27, 2020 was liabilities related to operating leases.

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

Company assets.

Cash used by investing activities of $23 thousand during the three month period ended September 27, 2020 was primarily attributable to capital expenditures of $27 thousand partially offset by $4 thousand in payments received on

notes receivable.

Cash provided by investing activities during the three month period ended September 29, 2019 of $27 thousand was primarily attributed to $44 thousand in payments received on notes receivable offset by capital expenditures

of $17 thousand.

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

flow used by financing activities was $3 thousand for the three month period ended September 27, 2020 compared to $2 thousand for the three month period ended September 29, 2019.

Cash flows from financing activities for the three months ended

September 27, 2020 and September 29, 2019 were both attributable to equity issuance costs.

Although we have taken aggressive measures to control expenses, we expect significantly reduced cash flow from operations during the second

quarter of 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.

During the six month period ended December 27, 2020, our primary source of liquidity was from sales of our common stock.

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 $0.3 million for the six month period ended December 27, 2020 compared to cash used of $0.4 million for

the six month period ended December 29, 2019.

The primary drivers of slightly improved operating cash flow during the six month period ended December 27, 2020 were reduced payments for settlement of operating leases and lower deferred revenues.

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 during the six month period ended December 27, 2020 was zero as a result of capital expenditures of $26 thousand being completely offset by $26 thousand in payments received on notes receivable.

Cash flows provided by investing

activities was $61 thousand for the six months ended December 29, 2019.

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

$3.6 million for the six month period ended December 27, 2020 compared to $1 thousand cash flow used by financing activities for the six month period ended December 29, 2019.

Cash flows from financing activities for the six months ended December

27, 2020 were primarily attributable to proceeds from sale of stock partially offset by equity issuance costs.

Although we have taken aggressive measures to control expenses, we expect significantly reduced cash flow from operations during the remainder of fiscal 2021 as a result of the

COVID-19 pandemic.

However, management believes the cash on hand combined with cash from operations will be sufficient to fund operations for the next 12 months.

2017 ATM Offering

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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”) 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 has been 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 September 27, 2020 , the Company had sold an aggregate of 524,660 shares in the 2017 ATM Offering, realizing aggregate

gross proceeds of $0.7 million.

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 the 2017

ATM Offering, realizing aggregate gross proceeds of $3.8 million.

The 2017 ATM Offering has been 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 December 27, 2020 , the Company had sold an aggregate of 3,064,342 shares in the 2017 ATM Offering, realizing aggregate gross proceeds of $4.5 million.

The 2017 ATM Offering expired on November 6, 2020.

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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 three month period ende d September 27, 2020, no Notes were converted to common shares.

As of September 27, 2020, $1.6 m illion

in par value of the Notes were outstanding.

During the six month period ended December 27, 2020, no Notes were converted to common shares.

As of December 27, 2020, $1.6 million in par value of the Notes were outstanding.

On April 13, 2020, the Company received the proceeds from a loan in the amount of $0.7 million (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.

(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 is unsecured by the Company and is guaranteed by the SBA.

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.

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

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.

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

No payment is due until a forgiveness decision is received from

No payment is due until a forgiveness decision

is received from the SBA.

We presently expect to receive a forgiveness decision in the second half of fiscal 2021.

Any amounts not forgiven are payable in equal monthly installments of principal and interest as necessary to fully amortize the outstanding principal

balance by the maturity date.

Any amounts not forgiven are payable in equal monthly installments of principal and interest as necessary to fully amortize the

outstanding principal balance by the maturity date.

We may prepay the PPP Loan at any time prior to the maturity with no repayment 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 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.

Critical Accounting Policies and Estimates

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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

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 revenues.

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 revenues.

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

Royalties and advertising fund revenues, which are

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

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.

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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.

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.

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.

1 unchanged sentence

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.

A s of September 27, 2020 and September 29, 2019, the Company had no uncertain tax positions.

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 December 27, 2020 and December 29, 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

4 unchanged sentences

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 2. Management’s Discussion and Analysis