What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-05-06 · 150 added, 282 removed, 145 unchanged (75% of the section changed)

2 unchanged sentences

Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 26, 2022 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 27, 2021.

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.

are set forth in our Annual Report on Form 10-K for the year ended June 26, 2022.

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

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Results of Operations

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”) franchises pizza buffet (“Buffet Units”), delivery/carry-out

(“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” 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”.

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco

Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” 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 25,

2022, franchised and licensed units consisted of the following:

Three Months Ended March 27, 2022

(in thousands, except unit data)

Domestic Franchised/Licensed

International Franchised

Nine Months Ended March 27, 2022

Three Months Ended September 25, 2022

(in thousands, except unit data)

1 unchanged sentence

International Franchised

Domestic units are located in 18 states predominantly situated in the southern half of the United States.

International units are located in six foreign countries.

Basic net income per share increased $0.01 per share to $0.03 per share for the three months ended March 27, 2022, compared to the comparable period in the prior fiscal year.

The Company had net income of $0.5 million for the three months ended March 27, 2022 compared to net income of $0.4 million in the comparable period in the prior fiscal year, on revenues of $2.6 million for the three months ended March 27, 2022

The domestic units were located in 18 states predominantly situated in the southern half of the United States.

The international units were located in seven foreign countries.

Basic net income per share of $0.02 per share was unchanged for the three months ended September 25, 2022, compared to the comparable period in the prior fiscal year.

Company had net income of $0.3 million for the three months ended September 25, 2022 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $3.0 million for the three months ended September 25, 2022

compared to $2.6 million in the comparable period in the prior fiscal year.

The increase in revenue was primarily due to increases in franchise royalties, supplier and distributer incentives, and advertising fund contributions.

The $0.1 million

increase in net income for the three months ended March 27, 2022, compared to the comparable period of the prior year was primarily the result of the $0.4 million increase in revenues partially offset by a $0.3 million increase in expenses.

Basic net income per share increased $0.04 per share to $0.07 per share for the nine months ended March 27, 2022, compared to the comparable period in the prior fiscal year.

The Company had net income of $1.2 million for the nine months ended March 27, 2022 compared to net income of $0.6 million in the comparable period in the prior fiscal year, on revenues of $7.9 million for the nine months ended March 27, 2022

compared to $6.2 million in the comparable period in the prior fiscal year.

The increase in revenue was primarily due to increases in franchise royalties, supplier and distribution incentives, and advertising fund contributions.

The $0.6 million

increase in net income for the nine months ended March 27, 2022 compared to the comparable period of the prior year was primarily the result of the $1.7 million increase in revenues partially offset by a $1.1 million increase in expenses.

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 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.

In some 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 precipitated significant job losses and a national economic downturn that impacted the demand for restaurant food service.

Although most of the Company's

domestic restaurants continued to operate under these conditions, the Company 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 program.

(See, "Liquidity and Capital Resources--PPP Loan," below.) The Company 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.

Although the impact of COVID-19 has moderated during fiscal 2022, the Company expects that Buffet Units and Pie Five Units in many areas 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.

On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus (COVID-19) as a pandemic, and the disease 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, severely disrupted our business operations.

Further, the COVID-19 pandemic precipitated significant job

losses and a national economic downturn that impacted the demand for restaurant food service.

Although most of our domestic restaurants continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic.

During much of the COVID-19

pandemic, we experienced 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 correspondingly decreased

supplier rebates and franchise royalties payable to the Company.

In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and/or enhanced cleaning and disinfecting practices.

As a result, the adverse

impacts of the COVID-19 pandemic have diminished in recent periods.

Nonetheless, 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 continue or whether it will recur, what additional restrictions may be enacted, if individuals will be comfortable frequenting our Buffet Units and Pie Five Units, or to what extent

off-premises dining will continue.

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

However, the ultimate impact of COVID-19 on the Company's

future results of operations and liquidity cannot presently be predicted.

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

Non-GAAP Financial Measures and Other Terms

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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.

The Company considers 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 the Company's industry.

The Company believes that EBITDA is helpful to investors in evaluating the Company's results of operations without the impact of expenses affected by financing methods, accounting methods and

the tax environment.

The Company believes 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.

The Company believes 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

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:

We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties

interested in our industry.

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

We believe that Adjusted

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

Management also uses these non-GAAP

financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.

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

“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, 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-based 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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“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) impairment and other lease charges, and (3)

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.

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EBITDA and Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended March 27, 2022 increased $0.2 million compared to the same period of the prior fiscal year.

Year-to-date Adjusted EBITDA

increased $0.8 million 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):

Adjusted EBITDA for the fiscal quarter ended September 25, 2022 increased $0.1 million compared to the same period of the prior fiscal year.

The following table sets forth a

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

RAVE RESTAURANT GROUP, INC.

EBITDA and ADJUSTED EBITDA

ADJUSTED EBITDA

(In thousands)

Three Months Ended

Nine Months Ended

September 25,

September 26,

Interest expense

Income tax expense

Depreciation and amortization

Stock compensation expense

Gain on sale of assets

Stock-based compensation expense

Impairment of long-lived assets and other lease charges

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 25,

September 26,

Pizza Inn Retail Sales - Total Domestic Units

(in thousands, except unit data)

Domestic Units

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Total Domestic Units

Total Pizza Inn domestic retail sales increased $4.7 million, or 27.0%, for the three months ended March 27, 2022 when compared to the same period of the prior year.

Inn domestic comparable store retail sales increased by $3.9 million, or 22.8%, for the three months ended March 27, 2022 when compared to the same period of the prior year.

Total Pizza Inn domestic retail sales increased $14.0 million, or 28.3%,

for the nine months ended March 27, 2022 when compared to the same period of the prior year.

Pizza Inn domestic comparable store retail sales increased by $13.8 million, or 29.4%, for the nine months ended March 27, 2022 when compared to the same

period of the prior year.

For both the three and nine months ended March 27, 2022, the improvements in domestic retail sales and comparable store retail sales were primarily the result of a moderation in the impact of COVID-19.

The following chart summarizes Pizza Inn unit activity for the three and nine months ended March 27, 2022:

Three Months Ended March 27, 2022

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

International Units (all types)

Nine Months Ended March 27, 2022

Pizza Inn total domestic retail sales increased by $3.6 million, or 17.9%, for the three months ended September 25, 2022 when compared to the same period of the prior year.

increase in domestic retail sales was primarily the result of the diminished impact of COVID-19 and increased customer engagement.

Pizza Inn domestic comparable store retail sales increased by $2.5 million, or 12.5%, for the same reason.

The following chart summarizes Pizza Inn restaurant activity for the three months ended September 25, 2022:

Three Months Ended September 25, 2022

Domestic Units:

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International Units (all types)

The domestic Pizza Inn units remained stable during the three months ended March 27, 2022.

There was a net decrease of seven units in the total domestic Pizza Inn unit count during the nine

months ended March 27, 2022.

For the three and nine months ended March 27, 2022, the number of international Pizza Inn units decreased by two units and one unit, respectively.

The Company believes the number of domestic Pizza Inn units will

stabilize in the near term and increase modestly in future periods.

The Company expects international units to increase moderately in future periods.

The domestic Pizza Inn units remained stable during the three months ended September 25, 2022.

For the three months ended September 25, 2022, the number of international Pizza Inn units increased

by two units.

The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Pie Five Brand Summary

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Three Months Ended

Nine Months Ended

(in thousands, except unit data)

September 25,

September 26,

(in thousands, except unit data)

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Total Domestic Units

Pie Five system-wide retail sales increased $0.8 million, or 19.5%, for the three months ended March 27, 2022 when compared to the same period of the prior year.

Pie Five system-wide retail sales increased $0.2 million, or 3.6%, for the three months ended September 25, 2022 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 33 to 31.

Comparable store retail sales increased $0.8 million, or 21.4%, during the third quarter of fiscal 2022 compared to the same period of the prior

Pie Five system-wide retail sales increased $2.0 million, or 15.4%, for the nine month period ended March 27, 2022 when compared to the same period of the prior year.

Year-to-date fiscal 2022 compared to year-to-date of the prior year,

average units open in the period decreased from 39 to 33.

Comparable store retail sales increased $2.0 million, or 17.2%, during the nine month period ended March 27, 2022 compared to the same period of the prior fiscal year.

For both the three

and nine months ended March 27, 2022, the improvements in domestic retail sales and comparable store retail sales were primarily the result of a moderation in the impact of COVID-19.

The following chart summarizes Pie Five Unit activity for the three and nine months ended March 27, 2022:

Three Months Ended March 27, 2022

Domestic - Franchised

Domestic - Company-owned

Total Domestic Units

Nine Months Ended March 27, 2022

Comparable store retail sales increased $0.4 million, or 7.6%, during the first quarter of fiscal 2023 compared to the same period of the prior

For the three months ended September 25, 2022, the improvements in domestic retail sales and comparable store retail sales were primarily the result of the diminished impact of COVID-19 and increased customer engagement.

The following chart summarizes Pie Five restaurant activity for the three months ended September 25, 2022:

Three Months Ended September 25, 2022

Domestic - Franchised

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Total Domestic Units

There was a net decrease of one Pie Five unit during the three months ended March 27, 2022.

The Pie Five units remained stable during the nine months ended March 27, 2022.

The Company believes the number of Pie Five units will stabilize in the near term and increase modestly in future periods.

Company-Owned Restaurants

The Company closed its single remaining Company-owned Pie Five restaurant during the third quarter of fiscal 2020.

Loss from continuing operations before taxes for the

Company-owned Pie Five stores decreased $76 thousand for the three months ended March 27, 2022 to $1 thousand compared to $77 thousand during the same period of the prior year.

Loss from continuing operations before taxes for the Company-owned

Pie Five stores decreased $253 thousand for the nine months ended March 27, 2022 to $3 thousand compared to $256 thousand during the same period of the prior year.

The decreased loss was the result of the closure of all remaining Company-owned

Our long-term strategy is expected to include Company-owned stores.

The Pie Five units remained stable during the three months ended September 25, 2022.

We believe that Pie Five units will eventually increase in future periods.

Financial Results

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The following is additional business segment

information for the three and nine months ended March 27, 2022 and March 28, 2021 (in thousands):

Three Months Ended March 27, 2022 and March 28, 2021

information for the three months ended September 25, 2022 and September 26, 2021 (in thousands):

Company-Owned

5 unchanged sentences

Franchise and license revenues

Restaurant sales

Rental income

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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

Depreciation and amortization expense

Total costs and expenses

INCOME/(LOSS) BEFORE TAXES

Nine Months Ended March 27, 2022 and March 28, 2021

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)

Bad debt expense

Interest expense

2 unchanged sentences

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, as well as the products sold to franchisees through third-party food distributors.

Total revenues for the three month period ended March 27, 2022 and for the same period in the prior fiscal year were $2.6 million and $2.2 million, respectively.

in total revenues was driven by increases in Pizza Inn and Pie Five franchise and license revenues.

Total revenues for the nine month period ended March 27, 2022 and for the same period in the prior fiscal year were $7.9 million and $6.2 million, respectively.

in total revenues was driven by increases in Pizza Inn and Pie Five franchise and license revenues.

Pizza Inn Franchise Revenues

Pizza Inn franchise and license revenues increased by $0.4 million to $2.1 million for the three month period ended March 27, 2022 compared to the same period of the prior

Pizza Inn franchise and license revenues increased to $6.3 million for the nine month period ended March 27, 2022 from $4.7 million for the same period of the prior fiscal year.

The increases were primarily driven by increases in supplier

incentives and domestic royalties revenues.

Pie Five Franchise Revenues

Pie Five franchise and license revenues increased by $0.1 million to $0.5 million for the three month period ended March 27, 2022 compared to the same period of

the prior fiscal year.

Pie Five franchise and license revenues increased to $1.4 million for the nine month period ended March 27, 2022 compared to $1.3

million for the same period in the prior fiscal year.

The increases were primarily driven by increases in supplier incentives and domestic royalties revenues.

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 $1 thousand for the three and nine month period ended March 27, 2022 as a result of the closure of all of the remaining Company-owned restaurants during the third quarter of fiscal 2020.

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

license fees, supplier convention funds, sublease rental income, interest and other income, 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, as well as the products sold to franchisees through third-party food distributors.

Total revenues for the three month period ended September 25, 2022 and for the same period in the prior

fiscal year were $3.0 million and $2.6 million, respectively.

Pizza Inn Franchise and License

Pizza Inn franchise revenues increased by $0.4 million to $2.5 million for the three month period ended September 25, 2022 as compared to the same period in the prior fiscal year.

The 21.4% increase was driven by increases in supplier incentives, domestic royalties and advertising fund revenues.

Pie Five Franchise and License

Pie Five franchise revenues remained relatively stable at $0.5 million for the three month period ended September 25, 2022 as compared to the same period in the prior fiscal

General and Administrative Expenses

Total general and administrative expenses increased $0.1 million to $1.4 million for the three month period ended March 27, 2022 compared to $1.3 million for the same period

of the prior fiscal year.

Total general and administrative expenses increased to $3.9 million for the nine month period ended March 27, 2022 compared to $3.5 million for the nine month period ended March 28, 2021.

The increases in general and

administrative expenses during both the three and nine month periods were primarily the result of increased corporate expenses.

Franchise Expenses

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

Total general and administrative expenses increased to $1.3 million for the three month period ended September 25, 2022 compared to $1.2 million for the same period of the

prior fiscal year.

The 11.5% increase in total general and administrative expenses during the three month period was primarily the result of increased corporate expenses.

Franchise Expenses

increased to $0.7 million for the three month period ended March 27, 2022 compared to $0.6 million for the same period of the prior fiscal year.

Franchise expenses increased to $2.5 million for the nine month period ended March 27, 2022 compared

to $1.8 million for the nine month period ended March 28, 2021.

In both cases, the increases were primarily due to an increase in advertising expenses.

Gain on Sale of Assets

Gain on sale of assets declined to zero for the three and nine months ended March 27, 2022 compared to a gain of $156 thousand during the comparable prior year periods.

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

Total franchise

expenses increased $0.2 million to $1.2 million for the three month period ended September 25, 2022 from $1.0 million for the same period of the prior fiscal year.

The increase was primarily due to an increase in payroll and related, advertising,

and travel costs.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges was zero for both the three month period ended March 27, 2022 and the comparable period in the prior fiscal year.

Impairment of long-lived assets and other lease charges was zero for the nine month period ended March 27, 2022 compared to $21 thousand for the same period of the prior fiscal year.

For the three and nine month periods ended March 27, 2022,

there were no charges related to lease termination expenses.

Impairment of long-lived assets and other lease charges were $5 thousand for the three months ended September 25, 2022 compared to zero for the same fiscal period of the prior

The increase was primarily due to writing down beverage equipment.

Bad Debt Expense

1 unchanged sentence

For the three

month period ended March 27, 2022, bad debt expense was $1 thousand compared to the bad debt recovery of $97 thousand for the same period in the prior fiscal year.

Bad debt expense for the nine month period ended March 27, 2022, decreased $9

thousand to $9 thousand compared to the comparable period in the prior fiscal year.

Interest Expense

Interest expense decreased $9 thousand to $14 thousand for the three month period ended March 27, 2022 compared to the same fiscal period of the prior year.

month period ended September 25, 2022, bad debt expense was $4 thousand compared to the bad debt expense of $5 thousand for the same period in the prior fiscal year.

Interest Expense

decreased $8 thousand to $61 thousand for the nine month period ended March 27, 2022 compared to the same fiscal period of the prior year.

In both cases, the decrease was primarily the result of the payment of all outstanding convertible notes

during the third quarter of fiscal 2022.

Depreciation and Amortization Expense

Depreciation and amortization expense increased slightly for the three and nine months ended March 27, 2022, compared to the same periods of the prior year.

In both cases,

the increase was primarily the result of increases in corporate equipment depreciation.

Provision for Income Tax

For the three and nine months ended March 27, 2022, the Company recorded an income tax expense of $3 thousand and $10 thousand, respectively, all of which is attributable to current state

The Company utilized net operating losses to offset federal income 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 March 27, 2022, the Company had established a full valuation allowance of $6.1 million against its deferred tax assets.

The Company will continue to review the need

for an adjustment to the valuation allowance.

Interest expense decreased $23 thousand to $1 thousand for the three month period ended September 25, 2022 compared to the same fiscal period of the prior year.

was primarily the result of the payment of all outstanding convertible notes during the third quarter of fiscal 2022.

Amortization and Depreciation Expense

Amortization and depreciation expense increased $7 thousand to $51 thousand for the three months ended September 25, 2022, compared to $44 thousand in the same periods of the

The increase was primarily the result of higher amortization of intangible assets.

Provision for Income Taxes

For the three months ended September 25, 2022, the Company recorded an income tax expense of $92 thousand, most of which is attributable to 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.

Liquidity and Capital Resources

During the nine month period ended March 27, 2022, the Company's primary source of liquidity was proceeds 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 provided by operating activities was $525 thousand for the nine month period ended March 27, 2022 compared to cash used of $357

thousand for the nine month period ended March 28, 2021.

The primary driver of increased operating cash flow during the nine month period ended March 27, 2022 was increased net income.

During the three month period ended September 25, 2022, the Company's primary source of liquidity was proceeds from operating activities.

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

compensation, and changes in working capital.

Cash provided by operating activities was $1.1 million for the three month period ended September 25, 2022 compared to cash used of $0.3 million for the three

month period ended September 26, 2021.

The primary driver of increased operating cash flow during the three month period ended September 25, 2022 was increased collections of accounts receivable related to the employee retention credit.

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 nine month period ended March 27, 2022 was $169 thousand, attributable to payments received on notes receivable from fixed asset sales of $240 thousand being partially offset by the purchase of definite-lived intangible

assets of $46 thousand and the purchase of property, plant, and equipment of $25 thousand.

Cash flows provided by investing activities were $11 thousand for the nine months ended March 28, 2021.

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

Cash used in investing activities

during the three month period ended September 25, 2022 was $23 thousand compared to cash provided by investing activities of $19 thousand for the three months ended September 26, 2021.

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

Net cash used by financing activities was $1.4

million for the nine month period ended March 27, 2022 compared to net cash provided by financing activities of $3.6 million for the nine month period ended March 28, 2021.

Net cash used by financing activities for the nine months ended March 27,

2022 was primarily attributable to the payment of all outstanding convertible notes during the third quarter of fiscal 2022.

As a result of the COVID-19 pandemic, the Company has taken aggressive measures to control expenses and expects modest cash flow from operations during the fourth quarter of

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

2017 ATM Offering

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 could

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 was 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 November 6, 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.

million for the three month period ended September 25, 2022 compared to net cash used by financing activities of $0.1 million for the three month period ended September 26, 2021.

Net cash used by financing activities for the three months ended

September 25, 2022 was primarily attributable to repurchases of the Company's common stock.

Management believes the cash on hand combined with net cash provided by operations will be sufficient to fund operations for the next 12 months and beyond.

Convertible Notes

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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 bore 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.

The Notes bore 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

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

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

the nine month period ended March 27, 2022, no Notes were converted to common shares.

The Notes matured on February 15, 2022, at which time all principal and unpaid interest was paid in cash.

As of March 27, 2022, there were no Notes 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.

pursuant to the Paycheck Protection Program of the

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

Small Business Administration (“SBA”).

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

We applied for and received a

forgiveness decision in the fourth quarter of fiscal 2021, such that all of the PPP Loan was forgiven at that time.

The Notes matured

on February 15, 2022, at which time all principal and unpaid interest was paid in cash.

Therefore, as of September 25, 2022, there were no Notes outstanding.

Employee Retention Credit

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law.

The CAA expanded eligibility for an employee retention credit for

companies impacted by the COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees.

This payroll tax credit was a

refundable tax credit against certain federal employment taxes.

For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit, $0.6 million of which was collected in the first quarter

of fiscal 2023.

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 the Company's reported amounts

of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities.

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.

and assumptions are reviewed periodically.

Estimates and

assumptions are reviewed periodically.

Actual results could differ materially from estimates.

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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.

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

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

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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,

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

based on discounted estimated future cash flows.

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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”

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 27, 2022 and March 28, 2021, the Company had no uncertain tax positions.

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

objectively verified, including recent operating performance.

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 September 25, 2022 and September 26, 2021, 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

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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