What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-21 compared with 2022-09-23 · 173 added, 302 removed, 170 unchanged (74% of the section changed)

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Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Annual

Report on Form 10-K and may contain certain forward-looking statements.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this

Annual Report on Form 10-K and may contain certain forward-looking statements.

See “Forward-Looking Statements.”

The Company franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under

the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”.

The Company also licenses Pizza Inn Express kiosks (“PIE Units”) under the trademark “Pizza

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

At June 26, 2022, Company-owned and franchised restaurants consisted of the

following (in thousands, except unit data):

The Company 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 kiosks (“PIE Units”) under the trademark “Pizza Inn”.

We facilitate food,

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

At June 25, 2023 and June 26, 2022, Company-owned and franchised restaurants consisted of the following

(in thousands, except unit data):

Fiscal Year Ended June 25, 2023

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

The international restaurants were located in seven foreign

The international restaurants were located in eight foreign

countries predominantly in the Middle East.

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

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Total Rave Comparable Store Retail Sales

Basic and diluted net income per common share increased $0.36 to net income of $0.45 per

share for fiscal 2022 compared to a net income of $0.09 per share in the prior fiscal year.

Net income increased $6.5 million to net income of $8.0 million for fiscal 2022 compared to a net income of $1.5 million for the prior fiscal year on

revenues of $10.7 million for fiscal 2022 as compared to $8.6 million in fiscal 2021.

Adjusted EBITDA for the fiscal year ended June 26, 2022, improved to $2.8 million compared to $2.0 million for 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):

Basic net income per common share decreased $0.34 to net income of $0.11 per share for fiscal 2023 compared to a net income of $0.45 per share in the prior fiscal year.

Diluted net income per common share decreased $0.35 to net income of $0.10 per share for fiscal 2023 compared to a net income of $0.45 per share in the prior fiscal year.

Net income decreased $6.4 million to net income of $1.6 million for fiscal

2023 compared to a net income of $8.0 million for the prior fiscal year on revenues of $11.9 million for fiscal 2023 as compared to $10.7 million in fiscal 2022.

Adjusted EBITDA for the fiscal year ended June 25, 2023, decreased to $2.7 million compared to $2.8 million for the prior fiscal year.

The following table sets forth a

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

Fiscal Year Ended

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Depreciation and amortization

Stock compensation expense

Gain on sale of assets

Stock-based compensation expense

Impairment of long-lived assets and other lease charges

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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 spread rapidly throughout the United States

and the world.

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.

Most of the domestic Pizza Inn buffet

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

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

Further, the COVID-19 pandemic precipitated significant job losses and a national economic downturn that impacted the

demand for restaurant food service.

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.

In most cases, in-store dining has now

resumed subject to seating capacity limitations, social distancing protocols, and enhanced cleaning and disinfecting practices.

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.

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.

Any of these changes could materially adversely

affect the Company’s future financial performance.

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

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.

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.

Therefore, despite the official end of the pandemic, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

Pizza Inn Brand Summary

The following tables summarize certain key indicators for the Pizza Inn franchised and licensed domestic restaurants that management believes are useful in evaluating performance.

The following tables summarize certain key indicators for the Pizza Inn franchised and licensed domestic restaurants that management believes are useful in evaluating

52 Weeks Ended

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Pizza Inn total domestic retail sales increased by $12.4 million, or 14.1% compared to the prior year.

The increase in domestic retail sales was primarily the result of a moderation

in the impact of COVID-19.

The 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 $9.8 million, or 11.3%, for the same reason.

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International Units (all types)

The net decrease of seven domestic units was primarily due to declines in Delco and PIE units.

We believe that this trend of net domestic store closures is moderating and will

reverse in future periods.

The net decrease of one international Pizza Inn unit was primarily due to closure of locations in Kuwait partially offset by new units in the Middle East.

We believe that this represents a

stabilizing of international unit count.

The net decrease of five domestic units was primarily due to declines in Delco and PIE units.

We believe that this trend of net domestic store closures is moderating and

will reverse in future periods.

The net increase of three international Pizza Inn units was due to new units in the Middle East and New Zealand.

Pie Five Brand Summary

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Domestic Units - Franchised

Domestic Units - Company-owned

Total Domestic Retail Sales

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Domestic Units - Franchised

Domestic Units - Company-owned

Total Domestic Units

Pie Five domestic total retail sales increased $2.6 million, or 14.5%, compared to the prior year despite average units open in the period

decreasing to 32 from 37 the prior year.

Pie Five domestic total retail sales decreased $0.3 million, or 1.5%, compared to the prior year and average units open in the period decreased to 29 from 32 the prior year.

decrease in domestic retail sales was primarily the result of lower store count.

Comparable store retail sales increased by $1.0 million, or 5.4% during fiscal 2023 compared to the prior year.

The improvement in both total

retail sales and comparable store retail sales was primarily the result of a moderation in the impact of COVID-19.

The improvement in comparable store retail

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

The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 25, 2023:

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Domestic - Franchised

Domestic - Company-owned

Total Domestic Units

The net decrease of two Pie Five units during fiscal 2022 was primarily the result of the closure of poor-performing units, which we

believe provides us a stronger foundation for future brand growth.

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

Pie Five - Company-Owned Restaurants

Fiscal Year Ended

(in thousands, except store weeks and average data)

Loss from continuing operations before taxes

Impairment, other lease charges and non-operating store costs

Restaurant operating cash flow

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

Loss from continuing operations before taxes for Company-owned Pie Five stores decreased to $0.3 million for the fiscal year ended June 26, 2022 compared to the same period of the prior year primarily due to the closure of all remaining Company-owned restaurants.

Operating cash flow from Company-owned Pie Five

restaurants remained essentially flat in fiscal 2022.

The net decrease of four Pie Five units during fiscal 2023 was primarily the result of the closure of poor-performing units.

Non-GAAP Financial Measures and Other Terms

The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”).

However, the Company also presents and discusses

certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance.

Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and

budgeting purposes.

However, the Company also presents and

discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance.

Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for

planning and budgeting purposes.

However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.

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

interested in our industry.

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.

We believe that restaurant operating cash

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

Management also uses these non-GAAP financial measures for

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

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 the meaning and are calculated as follows:

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

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

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) depreciation and amortization, (3) impairment and

other lease charges, and (4) non-operating store costs.

and other lease charges, and (4) 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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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 Fiscal Years ended June 26, 2022 and June 27, 2021 (in thousands):

The following is additional business segment information for the Fiscal

Years ended June 25, 2023 and June 26, 2022 (in thousands):

Company-Owned

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Fiscal Year Ended

June 26, 2022

Franchise and license revenues

Restaurant sales

Rental income

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Franchise expenses

Gain on sale of assets

Impairment of long-lived assets

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Interest expense

Amortization and depreciation expense

Depreciation and amortization expense

Total costs and expenses

OTHER INCOME:

Gain on forgiveness of PPP loan

Employee retention credit

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INCOME/(LOSS) BEFORE TAXES

Revenues are derived from franchise royalties, franchise fees and supplier and distributer 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 fiscal 2022 and fiscal 2021 were $10.7

million and $8.6 million, respectively.

Revenues are derived from franchise royalties, franchise fees and supplier and distributer 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 fiscal 2023 and fiscal 2022 were $11.9 million and $10.7 million, respectively.

Pizza Inn Franchise and License Revenues

Pizza Inn franchise revenues increased by $1.3 million to $9.8 million in fiscal 2023 compared to $8.5 million in fiscal 2022.

increase was primarily the result of a moderation in the impact of COVID-19.

The 14.9% increase was primarily the result of

an increase in store count, effective marketing campaigns, and a reduction in the impact of COVID-19.

Pie Five Franchise and License Revenues

Pie Five franchise revenues increased by $0.2 million to $2.0 million for fiscal 2022 compared to $1.8 million for fiscal 2021.

increase was primarily the result of a moderation in the impact of COVID-19.

Pie Five franchise revenues decreased by $0.1 million to $1.9 million for fiscal 2023 compared to $2.0 million for fiscal 2022.

The 4.1% decrease was primarily the result of

lower store count.

Restaurant Sales

We had no restaurant sales, which consist of revenue generated by Company-owned restaurants, in fiscal 2022 or fiscal 2021 because we

closed our single remaining Company-owned restaurant during the third quarter of fiscal 2020.

We had no restaurant sales, which consist of revenue generated by Company-owned restaurants, in fiscal 2023 or fiscal 2022 because we closed our single remaining

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

Costs and Expenses:

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

These costs decreased to $1 thousand for fiscal 2022 compared to $264 thousand in fiscal 2021.

The decrease was primarily the result of the closure of the remaining Company-owned stores during the third quarter of fiscal 2020 partially offset by

ongoing lease costs directly related to closed Company-owned stores.

These costs decreased to zero for

fiscal 2023 compared to $1 thousand in fiscal 2022.

The decrease was primarily the result of the closure of the remaining Company-owned stores during the third quarter of fiscal 2020 partially offset by ongoing lease costs directly related to

closed Company-owned stores.

General and Administrative Expenses

Total general and administrative expenses increased to $5.4 million for fiscal 2022 compared to $4.7 million in the

prior fiscal year.

The $0.7 million, or 15.6%, increase in total general and administrative expenses was primarily the result of increased employment , legal , and travel expenses.

Total general and administrative expenses increased to $5.5 million for fiscal 2023 compared to $5.4 million in the prior fiscal year.

The $44 thousand,

or 0.8%, increase in total general and administrative expenses was primarily the result of increased corporate expenses related to a decrease in miscellaneous income offset by a decrease in legal fees.

Franchise Expenses

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

international franchises.

Total franchise expenses increased $0.9 million to $3.3 million in fiscal 2022 from $2.4 million in the prior fiscal year.

Pizza Inn franchise expenses increased $0.9 million to $2.3 million in fiscal 2022 compared to

$1.4 million in the prior fiscal year primarily as a result of an increase in payroll and related, advertising, and travel costs.

Pie Five franchise expenses of $1.0 million in fiscal 2022 remained essentially unchanged from the prior year.

Gain on Sale of Assets

The Company’s gain on sale of assets reflects the net difference between the sale price of assets and the net carrying value of the assets

at the time of sale.

Gain on sale of assets decreased to zero in fiscal 2022 compared to $10 thousand in the prior year.

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

Total franchise

expenses increased $0.7 million to $4.0 million in fiscal 2023 from $3.3 million in the prior fiscal year.

Pizza Inn franchise expenses increased $0.8 million to $3.1 million in fiscal 2023 compared to $2.3 million in the prior fiscal year

primarily as a result of an increase in payroll and related, advertising, and travel costs.

Pie Five franchise expenses decreased $0.1 million to $0.9 million in fiscal 2023 compared to $1.0 million in the prior fiscal year primarily as a result

of lower store count.

Impairment Expenses

Impairment of long-lived assets and other lease charges were $5 thousand for fiscal 2023 compared to $6 thousand for fiscal 2022.

Impairment of long-lived assets and other lease charges for Company-owned restaurants was zero in fiscal 2022 compared to $21 thousand in fiscal 2021 primarily due to a reduction in lease charges for closed stores.

Impairment of long-lived assets and other

lease charges for Company-owned restaurants of zero in fiscal 2023 remained essentially unchanged from the prior year.

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 decreased by $75 thousand to $46 thousand in fiscal 2022 compared to $121 th ousand in fiscal 2021 primarily related to domestic accounts

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable.

expense increased by $27 thousand to $73 thousand in fiscal 2023 compared to $46 thousand in fiscal 2022 primarily related to collectability concerns on international accounts receivable.

Interest Expense

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Amortization and Depreciation Expense

Amortization and depreciation expense increased $20 thousand to $187 thousand in fiscal 2022 compared to $167 thousand in fiscal 2021

primarily as a result of higher amortization of equipment.

Amortization and depreciation expense increased $27 thousand to $214 thousand in fiscal 2023 compared to $187 thousand in fiscal 2022 primarily as a result of higher

amortization of intangible assets.

Other income represents non-recurring income that is not derived from the operations of the Company.

The Company had a $0.7 million refundable employee retention tax credit during fiscal 2022

compared to $0.7 million in loan forgiveness during fiscal 2021, both of which were the result of governmental actions to mitigate the economic impacts of the COVID-19 pandemic.

(See, “Liquidity and Capital Resources – Employee Retention Credit”

and “- PPP Loan,” below.) Management does not presently expect similar benefits to be available in subsequent periods.

which was the result of governmental actions to mitigate the economic impacts of the COVID-19 pandemic.

(See, “Liquidity and Capital Resources – Employee Retention Credit” below.) Management does not presently expect similar benefits to be

available in subsequent periods.

Provision for Income Tax

For the year ended June 26, 2022, t he Company recorded an

income tax benefit of $5.

7 million including federal deferred tax benefit of $5.5 million and

current/deferred state tax benefit of $0.

As of June 26, 2022, the Company had net operating loss

carryforwards totaling $23.1 million that are available to reduce future taxable income and will begin to expire in 2032 , of which $1.8 million are limited to 80% and do not

Tax returns for fiscal 2013 and after will remain open to examination by federal and state tax authorities for three to four years following the tax year in which net operating losses or tax credits are utilized.

The Company was not subject to income tax examinations by any tax authority as of June 26, 2022.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future

taxable income, reversal of existing taxable temporary differences, and tax planning strategies.

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

of deferred tax assets.

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

The Company has reversed the full amount of the valuation allowance as of June 26, 2022.

The reversal of the valuation allowance resulted in a tax benefit of $5.7 million in fiscal 2022 compared to a negligible

tax benefit in fiscal 2021 .

There are no material uncertain tax positions.

Management’s position is that all relevant requirements are met and necessary returns

have been filed, and therefore the tax positions taken on the tax returns would be sustained upon examination.

For the year ended June 25, 2023, the Company recorded an income tax expense of $0.5 million.

The federal and state tax expense was $0.4 million and $0.1

million, respectively.

The Company utilized net operating losses to offset federal taxes.

For the year ended June 26, 2022, the Company recorded an income tax benefit of $5.7 million including federal deferred tax benefit of $5.5 million and

current/deferred state tax benefit of $0.2 million.

As of June 25, 2023, the Company had federal net operating loss carryforwards totaling $21 million that are available to reduce future taxable income and will begin to expire in 2035.

the Tax Cuts and Jobs Act, approximately $1.4 million of the loss carryforwards are limited to 80% and do not expire.

Tax years that remain subject to examination by the IRS are the years ended June 28, 2020 through June 26, 2022.

years that remain subject to examination by state authorities are the years ended June 30, 2019 through June 26, 2022.

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

temporary differences, and tax planning strategies.

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

Future sources of

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

Based on this analysis, the Company reversed the full amount of the established valuation allowance as of June 26, 2022.

There are no uncertain tax positions.

Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on the tax

returns would be sustained upon examination.

Liquidity and Capital Resources

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

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and

amortization, changes in deferred taxes, share based compensation, and changes in working capital.

Cash provided by operations was $1.4 million in fiscal 2022 compared to cash provided by operations of $1.5 million in fiscal year 2021.

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

purchase of Company assets.

Cash provided by investing activities was $0.3 million in fiscal 2022 compared to cash used by investing activities of $0.2 million in fiscal 2021.

million increase in cash provided by investing activities was primarily the result of payments on notes receivable from prior sales of assets.

Cash flows from financing activities generally reflect changes in the Company’s borrowings and securities activity

during the period.

Net cash used by financing activities was $2.3 million for the fiscal year ended June 26, 2022 compared to net cash provided by financing activities of $3.9 million for the fiscal year June 27, 2021.

The cash used by

financing activities in fiscal 2022 was primarily the result of $1.6 million used to retire all outstanding convertible notes, as well as $0.5 million used to repurchase shares of the Company’s common stock and $0.2 million used to repay a short

The cash provided by financing activities in fiscal 2021 was primarily attributable to proceeds from sales of stock in an at-the-market offering.

PPP Loan Forgiveness and Employee Retention Credit

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.

Small Business Administration (“SBA”).

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

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.

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

share based compensation, and changes in working capital.

Cash provided by operations was $2.6 million in fiscal 2023 compared to cash provided by operations of $1.4 million in fiscal 2022.

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

in investing activities was $15 thousand in fiscal 2023 compared to cash provided by investing activities of $0.3 million in fiscal 2022.

The $0.3 million decrease in cash provided by investing activities was primarily the result of

decreased payments on notes receivable from prior sales of assets.

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

Net cash used in

financing activities was $5.0 million for the fiscal year ended June 25, 2023 compared to net cash used in financing activities of $2.3 million for the fiscal year June 26, 2022.

The cash used in financing activities in fiscal 2023 was

primarily the result of $5.0 million used to repurchase shares of the Company’s common stock.

The cash used in financing activities in fiscal 2022 was primarily attributable to the retirement of all outstanding convertible notes, the repurchase

of the Company’s common stock, and the repayment of a short term loan.

Employee Retention Credit

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

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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.

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.

The Company has also benefitted from the CAA guidance to treat expenses associated with

the PPP loan forgiveness as tax deductible.

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

Riley FBR, Inc.

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

of its common stock having an aggregate offering price of up to $5.0 million 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 June 27, 2021, the Company had sold an aggregate of 3,064,342 shares in the 2017 ATM Offering, realizing aggregate gross proceeds of $4.4 million.

ATM Offering expired on November 6, 2020.

The Company has also benefitted from the CAA guidance to treat expenses

associated with the PPP loan forgiveness as tax deductible.

Convertible Notes

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

Shareholders exercised subscription rights to purchase all 30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.

The Notes 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,

Shareholders exercised subscription

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

The Notes 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.

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.

During the fiscal

year ended June 26, 2022, no Notes were converted to common shares.

the fiscal year ended June 26, 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.

Therefore, as of June 26, 2022, there were no Notes outstanding.

We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily from cash on hand and

operating cash flow.

Based on budgeted and year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 2023 fiscal year and beyond.

Therefore, as of June 25, 2023 and June 26, 2022, there were

no Notes outstanding.

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

Based on budgeted and

year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 2024 fiscal year and beyond.

Critical Accounting Policies and Estimates

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

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

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

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

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

Estimates and

assumptions are reviewed periodically.

and assumptions are reviewed periodically.

Actual results could differ materially from estimates.

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

require subjective judgments.

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

therefore require subjective judgments.

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

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

The Company records a provision for doubtful receivables to allow

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

Actual realization of accounts receivable could differ materially from the

Company’s estimates.

The Company 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.

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reduced to its fair value, based on discounted estimated future cash flows.

The Company recognized pre-tax, non-cash impairment charges of $6 thousand and $21 thousand during fiscal years 2022 and 2021, respectively.

The Company recognized pre-tax, non-cash impairment charges of $5 thousand and $6 thousand during fiscal 2023 and 2022, respectively.

The Company had $0.2 million in

sublease income during fiscal year 2022.

The Company had lease charges related to closed units of $0.7 million partially offset by $0.2 million in sublease income during fiscal year 2021.

sublease income during fiscal 2023 and 2022.

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

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

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

differences, and tax planning strategies.

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

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.

Based on this

analysis, the Company reversed the full amount of the previous valuation allowance as of June 26, 2022.

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.

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

temporary differences, and tax planning strategies.

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

Future sources of

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

Based on this analysis, the Company reversed the full amount of the established valuation allowance as of June 26, 2022.

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 June 25, 2023 and June 26, 2022, the Company had no uncertain tax positions.

The Company assesses its exposures to loss contingencies from legal matters based upon factors such as the current status of the cases and consultations with external counsel and

provides for the exposure by accruing an amount if it is judged to be probable and can be reasonably estimated.

The Company assesses its exposures to loss contingencies from legal matters based upon factors such as the current status of the cases and consultations with external counsel

and provides for the exposure by accruing an amount if it is judged to be probable and can be reasonably estimated.

If the actual loss from a contingency differs from management’s estimate, operating results could be adversely impacted.

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The Company does not currently have any finance leases.

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

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

Short-term leases that have an initial term of

one year or less are not capitalized.

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

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

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

less are not capitalized.

The Company does not presently have any short-term leases.

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payments is recognized on a straight-line basis over the lease term.

Nature of Leases

The Company leases certain office space, restaurant space, and information technology equipment under non-cancelable leases to support its operations.

A more detailed description of significant

lease types is included below.

Office Agreements

The Company rents office space from third parties for its corporate location.

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

The Company has concluded that

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

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

As a result, enforceable

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

Restaurant Space Agreements

The Company rents restaurant space from third parties for its Company-owned restaurants.

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

Company has concluded that its restaurant agreements represent operating leases with a lease term that equals the primary non-cancelable contract term.

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

As a result, enforceable rights and obligations do not exist under the rental agreements subsequent to the primary term.

The Company also subleases some of its restaurant space to third parties.

The Company’s two subleases have terms that end in 2023 and 2025.

The sublease agreements are noncancelable through the end

of the term and both parties have substantive rights to terminate the lease when the term is complete.

Sublease agreements are not capitalized and are recorded as rental income in the period that rent is received.

As of June 26, 2022, the Company had no Company-owned restaurants.

Information Technology Equipment

The Company rents information technology equipment, primarily printers and copiers, from a third party for its corporate office location.

Information technology equipment agreements are typically

structured with non-cancelable terms of one to five years.

The Company has concluded that its information technology equipment commitments are operating leases.

Discount Rate

Leases typically do not provide an implicit rate.

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

information available at commencement date.

The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a

similar economic environment.

The Company uses the implicit rate in the limited circumstances in which that rate is readily determinable.

Lease Guarantees

The Company has guaranteed the financial responsibilities of certain franchised store leases.

These guaranteed leases are not considered operating leases because the Company does not have the right

to control the underlying asset.

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

If the Company does not expect to assign the

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

Practical Expedients and Accounting Policy Elections

Certain lease agreements include lease and non-lease components.

For all existing asset classes with multiple component types, the Company has utilized the practical expedient that exempts it from

separating lease components from non-lease components.

Accordingly, the Company accounts for the lease and non-lease components in an arrangement as a single lease component.

In addition, for all existing asset classes, the Company has made an accounting policy election not to apply the lease recognition requirements to short-term leases (that is, a lease that, at

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

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

our income statements on a straight-line basis over the lease term which has not changed from our prior recognition.

To the extent that there are variable lease payments, we

recognize those payments in our income statements in the period in which the obligation for those payments is incurred.

The components of total lease expense for the fiscal year ended June 26, 2022, the majority of which is included in general and administrative expense, are as

follows (in thousands):

Fiscal Year Ended

June 26, 2022

Operating lease cost

Sublease income

Total lease expense, net of sublease income

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

Fiscal Year Ended

June 26, 2022

Cash paid for amounts included in the measurement of lease liabilities

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

Fiscal Year Ended

June 26, 2022

Operating lease right of use assets, net

Operating lease liabilities, current

Operating lease liabilities, net of current portion

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

Fiscal Year Ended

June 26, 2022

Weighted average remaining lease term

Weighted average discount rate

Operating lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands):

Operating Leases

Total operating lease payments

imputed interest

Total operating lease liability

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for a smaller reporting company.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See information set forth on Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis