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Item 1. Financial Statements

2024-02-01 compared with 2023-11-02 · 473 added, 109 removed, 296 unchanged (66% of the section changed)

1 unchanged sentence

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED

STATEMENTS OF INCOME

(In thousands, except per share amounts)

Three Months Ended

September 24 ,

September 25 ,

Six Months Ended

December 24 ,

December 25 ,

December 24 ,

December 25 ,

COSTS AND EXPENSES:

7 unchanged sentences

INCOME BEFORE TAXES

Income tax expense

Income tax benefit (expense)

INCOME PER SHARE OF COMMON STOCK - BASIC:

6 unchanged sentences

(In thousands , except share amounts)

September 24 ,

December 24 ,

CURRENT ASSETS

41 unchanged sentences

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’

(In thousands)

4 unchanged sentences

Balance, September 25, 2022

Stock-based compensation expense

Purchase of treasury stock

Balance, December 25, 2022

Treasury Stock

2 unchanged sentences

Balance, September 24, 2023

Stock-based compensation expense

Purchase of treasury stock

RSU vested and taxes paid on RSUs

Balance, December 24, 2023

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands )

Three Months Ended

September 24 ,

September 25 ,

Six Months Ended

December 24 ,

December 25 ,

CASH FLOWS FROM OPERATING ACTIVITIES:

11 unchanged sentences

Deferred contract charges

Prepaid expenses and other assets

Prepaid expenses and other current assets

Accounts payable - trade

10 unchanged sentences

Purchase of treasury stock

Taxes paid on issuance of restricted stock units

Payments on short term loan

Cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

4 unchanged sentences

RAVE RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

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.

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”) and ghost kitchens (“Pie Five Ghost Kitchen 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.

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

have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

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

The unaudited condensed consolidated financial statements should be read in conjunction with the

Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2023.

have been prepared without audit pursuant to the rules and

regulations of the Securities and Exchange Commission (“SEC”).

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

The unaudited condensed

consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2023.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the

12 unchanged sentences

Fiscal Quarters

The three month periods ended September 24, 2023 and September 25, 2022 each contained 13 weeks.

The three and six month periods ended December 24, 2023 and December 25, 2022 each contained 13 weeks and 26 weeks, respectively.

Use of Management Estimates

5 unchanged sentences

Actual results could differ materially from estimates.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Statements - Credit

Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of

reasonable and supportable information to inform credit loss estimates.

The new guidance was effective for the Company on June 26, 2023.

There was no material impact on the Company’s consolidated financial statements and related

disclosures as a result of adopting this standard.

Revenue Recognition

11 unchanged sentences

Franchise license fees are typically billed upon execution of the franchise agreement and amortized over the term of the franchise agreement

which typically range from five to 20 years .

which typically range from five to 20

Fees received for renewal periods are amortized over the life of the renewal period.

13 unchanged sentences

Rental Income

The Company 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.

The Company subleases some of its restaurant space to a third party.

The Company’s sublease has terms that end in 2025.

agreement is 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.

Total revenues consist of the following (in thousands):

Three Months Ended

September 24, 2023

September 25, 2022

Franchise royalties

3 unchanged sentences

Advertising funds contributions

Rental income

Six Months Ended

Franchise royalties

Supplier and distributor incentive revenues

Franchise license fees

Area development exclusivity fees and foreign master license fees

Advertising funds contributions

Supplier convention funds

5 unchanged sentences

guidance also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow.

stock units (“RSUs”) represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions.

Compensation cost for RSUs is measured as an amount equal to the

fair value of the RSUs on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on the best estimate of the ultimate

achievement level.

Restricted stock units (“RSUs”) represent the right to receive shares of common stock upon the satisfaction of vesting requirements,

performance criteria and other terms and conditions.

Compensation cost for RSUs is measured as an amount equal to the fair value of the RSUs on the date of grant and is expensed over the vesting period if achievement of the performance

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

Note B - Leases

25 unchanged sentences

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 .

The 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 lease.

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

The Company 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 September 24, 2023 and June 25, 2023, the Company had no

Company-owned restaurants.

The Company subleases some of its restaurant space to a third party.

The Company’s sublease has terms that end in 2025.

agreement is 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.

Information Technology Equipment

27 unchanged sentences

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 three months ended September 24, 2023 and September 25, 2022, the majority of which is

The components of total lease expense for the three and six months ended December 24, 2023 and December 25, 2022, the majority of which is

included in general and administrative expense in the accompanying Condensed Consolidated Statements of Income, are as follows (in thousands ):

Three Months Ended

September 24, 2023

September 25, 2022

December 25 ,

December 24 ,

December 25 ,

Operating lease cost

2 unchanged sentences

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

September 24, 2023

September 25, 2022

December 25 , 2022

Weighted average remaining lease term

13 unchanged sentences

For the three

months ended September 24, 2023 and September 25, 2022, the Company recognized stock-based compensation expense related to stock options of zero

and $ 4 thousand, respectively.

As of September 24, 2023, there was no unamortized stock-based compensation expense related to stock options.

and six months ended December 24, 2023, the Company recognized stock-based compensation expense related to stock options of zero

and zero , respectively.

For the three six months ended December 25, 2022, the Company recognized stock-based compensation

expense related to stock options of $ 4 thousand and $ 8 thousand, respectively.

As of December 24, 2023, there was no

unamortized stock-based compensation expense related to stock options.

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

Three Months Ended

September 24,

September 25,

Six Months Ended

Outstanding at beginning of year

3 unchanged sentences

Restricted Stock Units:

For the three months ended September 24, 2023 and September 25, 2022, the Company had stock-based compensation expense related to RSUs of

$ 79 thousand and $ 82

thousand, respectively.

As of September 24, 2023, there was $ 138 thousand unamortized stock-based compensation expense related to

As of September 24, 2023 and September 25, 2022, the RSUs will be amortized during the next one and 13 months, respectively.

For the three and six months ended December 24, 2023, the Company had stock-based compensation expense related to RSUs of $ 3 thousand and $ 82 thousand,

respectively.

For the three and six months ended December 25, 2022, the Company had stock-based compensation expense related to RSUs of $ 82

thousand and $ 165 thousand, respectively.

As of December 24, 2023, there was $ 328 thousand unamortized stock-based compensation expense related to RSUs.

As of December 24, 2023 and December 25, 2022, the RSUs will be amortized during the next ten and 34 months, respectively.

A summary of the status

of restricted stock units as of September 24, 2023, and changes during the three months then ended is presented below:

Three Months Ended

September 24,

September 25 ,

of restricted stock units as of December 24, 2023, and changes during the six months then ended is presented below:

Six Months Ended

December 25 ,

Unvested at beginning of year

Performance Adjustment

Unvested at end of period

Forfeited/Canceled

Unvested at December 24, 2023

Note E - Earnings per Share (EPS)

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

denominator of the diluted EPS calculation (in thousands, except per share amounts):

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

diluted EPS calculation (in thousands, except per share amounts):

Three Months Ended

September 24, 2023

September 25, 2022

Net income available to common shareholders

Six Months Ended

Net income available to common stockholders

Weighted average common shares

4 unchanged sentences

Net income per common share

For the three months ended September 24, 2023, exercisable options to purchase 103,086 shares of common stock at exercise prices from $ 3.95

to $ 13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero .

For the three months ended September 24, 2023, 90,625 RSUs were excluded from the computation of diluted EPS because performance criteria is not probable at period end.

For the three months ended September 25, 2022, exercisable options to purchase 111,750 shares of common stock at exercise prices ranging from $ 3.95 to

$ 13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero .

For the three months ended September 25, 2022, zero RSUs were excluded from the computation of diluted EPS .

For the three and six months ended December 24, 2023, exercisable options to purchase 103,086 shares of common stock at exercise prices from $ 3.95 to $ 13.11 were excluded from the computation of diluted EPS because they

had an intrinsic value of zero .

For the three and six months ended December 24, 2023, zero and 90,625 RSUs were excluded from the computation of

diluted EPS because performance criteria is not probable at period end, respectively.

For the three and six months ended December 25, 2022, exercisable options to purchase 111,750 shares of common stock at exercise prices from $ 3.95 to $ 13.11 were excluded from the computation of diluted EPS because they

had an intrinsic value of zero .

For the three and six months ended December 25, 2022, zero and zero RSUs were excluded from the computation of

diluted EPS because performance criteria is not probable at period end, respectively.

Note F - Income Taxes

three months ended September 24, 2023, the Company recorded an income tax expense of $ 132 thousand.

For the three months

ended September 25, 2022, the Company recorded an income tax expense of $ 92 thousand.

For the three months ended September

24, 2023, the federal and state tax expense were $ 108 thousand and $ 24 thousand, respectively.

For the three months ended September 25, 2022, the federal and state tax expense were $ 82 thousand and $ 10 thousand, respectively.

three and six months ended December 24, 2023, the Company recorded an income tax benefit of $ 13 thousand and a tax expense

of $ 119 thousand, respectively.

For the three and six months ended December 25, 2022, the Company recorded an income tax

expense of $ 140 thousand and $ 232

thousand, respectively.

For the three months ended December 24, 2023, the federal tax benefit was $ 23 thousand and the

state tax expense was $ 10 thousand.

For the six months ended December 24, 2023, the federal and state tax expense were $ 85 thousand and $ 34

thousand, respectively.

For the three months ended December 25, 2022, the federal and state tax expense were $ 100 thousand

and $ 40 thousand, respectively.

For the six months ended December 25, 2022, the federal and state tax expense were $ 182 thousand and $ 50

thousand, respectively.

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

5 unchanged sentences

reportable operating segments as determined by management using the “management approach” as defined by ASC 280 Disclosures about Segments of an Enterprise and Related Information:

(1) Pizza Inn

Franchising and (2) Pie Five Franchising.

(1) Pizza Inn Franchising and (2) Pie Five Franchising.

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

Corporate administration costs, which include, but are not limited to, general accounting, human

resources, legal and credit and collections, are partially allocated to the three operating segments.

Other revenue consists of

nonrecurring items.

The Pizza Inn and Pie Five Franchising segments establish franchisees,

licensees and territorial rights.

Revenue for these segments are derived from franchise royalties, franchise fees, sale of area development and foreign master license rights and incentive payments from third party suppliers and

distributors.

Assets for these segments include equipment, furniture and fixtures.

The Company-Owned Restaurants segment includes sales and operating results for all Company-owned

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

As of September 24, 2023, the Company did not operate any Company-owned restaurants.

Corporate administration and other assets primarily include cash and short-term investments, as

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

Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are

partially allocated to the three operating segments.

Other revenue consists of nonrecurring items.

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

Revenue for these segments are

derived from franchise royalties, franchise fees, sale of area development and foreign master license rights and incentive payments from third party suppliers and distributors.

Assets for these segments include equipment, furniture and

Corporate administration and other assets primarily include cash and short-term investments, as well as furniture and fixtures located

at the corporate office and trademarks and other intangible assets.

All assets are located within the United States.

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

September 24, 2023 and September 25, 2022 (in thousands) :

Summarized in the following tables are net operating revenues, depreciation and amortization expense, and income before taxes for the

Company’s reportable segments as of the three and six months ended December 24, 2023 and December 25, 2022 (in thousands):

Three Months Ended

September 24, 2023

September 25, 2022

Six Months Ended

Net sales and operating revenues:

15 unchanged sentences

Consolidated revenues

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

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

Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 25, 2023 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 25, 2023.

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

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

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

Results of Operations

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), 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”) and ghost kitchens ("Pie Five Ghost Kitchen Units") under the trademarks “Pie Five Pizza Company” or

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

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

agreements with third party distributors.

At December 24, 2023, franchised and licensed units consisted of the following:

Three Months Ended December 24, 2023

(in thousands, except unit data)

Domestic Franchised/Licensed

International Franchised

Six Months Ended December 24, 2023

(in thousands, except unit data)

Domestic Franchised/Licensed

International Franchised

The domestic units were located in 17 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 increased $0.02 per share to $0.04 per share for the three months ended December 24, 2023, compared to the comparable period in the prior fiscal year.

The Company had net income of $0.6 million for the three months ended December 24, 2023 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $2.8 million for the three months ended December 24,

2023 compared to $2.9 million in the comparable period in the prior fiscal year.

The decrease in revenue was primarily due to decreases in franchise royalties and supplier and distributor incentives impacted by decreased store count offset by

increased comparable store retail sales.

Basic net income per share increased $0.03 per share to $0.07 per share for the six months ended December 24, 2023, compared to the comparable period in the prior fiscal year.

Company had net income of $0.9 million for the six months ended December 24, 2023 compared to net income of $0.7 million in the comparable period in the prior fiscal year, on revenues of $5.9 million for the six months ended December 24, 2023

compared to $5.9 million in the comparable period in the prior fiscal year.

The stability in revenue was primarily due to increases in default and closed store revenues and franchise royalties, offset by a decrease in deferred marketing revenue.

COVID-19 Pandemic

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

Non-GAAP Financial Measures and Other Terms

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

However, the Company also presents and

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

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

planning and budgeting purposes.

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

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

interested in our 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-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, which may be segmented by brand or domestic/international locations.

“Comparable store retail sales” includes the retail sales for restaurants that have been open for at least 18 months as of the end of the reporting period.

The sales results for a restaurant that was closed

temporarily for remodeling or relocation within the same trade area are included in the calculation only for the days that the restaurant was open in both periods being compared.

“Store weeks” represent the total number of full weeks that specified restaurants were open during the period.

“Average units open” reflects the number of restaurants open during a reporting period weighted by the percentage of the weeks in a reporting period that each restaurant was open.

“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks) divided by store weeks in the period.

“Non-operating store costs” represent gain or loss on asset disposal, store closure expenses, lease termination expenses and expenses related to abandoned store sites.

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

EBITDA and Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended December 24, 2023 remained relatively stable at $0.6 million compared to the same period of the prior fiscal year.

Adjusted EBITDA remained relatively stable at $1.2 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.

ADJUSTED EBITDA

(In thousands)

Three Months Ended

Six Months Ended

Interest expense

Depreciation and amortization

Stock-based compensation expense

Impairment of long-lived assets and other lease charges

Franchisee default and closed store revenue

Closed and non-operating store costs

Adjusted EBITDA

Pizza Inn Brand Summary

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

Three Months Ended

Six Months Ended

Pizza Inn Retail Sales - Total Domestic Units

(in thousands, except unit data)

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Retail Sales

Pizza Inn Comparable Store Retail Sales - Total Domestic

Pizza Inn Average Units Open in Period

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

Pizza Inn total domestic retail sales increased by $1.9 million, or 8.1%, for the three months ended December 24, 2023 when compared to the same period of the prior year.

to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 72 to 75.

Comparable store retail sales increased by $1.6 million to $24.4 million for the three month period ended December 24, 2023 as compared

to the same period of the prior fiscal year.

For the three months ended December 24, 2023, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, supplemented by an increase in comparable domestic store

retail sales.

Pizza Inn total domestic retail sales increased by $4.0 million, or 8.3%, for the six months ended December 24, 2023 when compared to the same period of the prior year.

to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 73 to 77.

Comparable store retail sales increased by $3.2 million to $49.0 million for the six month period ended December 24, 2023 as compared

to the same period of the prior fiscal year.

For the six months ended December 24, 2023, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, supplemented by an increase in comparable domestic store

retail sales.

The following chart summarizes Pizza Inn restaurant activity for the three and six months ended December 24, 2023:

Three Months Ended December 24, 2023

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

International Units (all types)

Six Months Ended December 24, 2023

Domestic Units

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Total Domestic Units

International Units (all types)

There was a net increase of one and a net decrease of 11 units in the total domestic Pizza Inn unit count during the three and six months ended December 24, 2023, respectively.

There were two and

two transfers in the total domestic Pizza Inn unit count during the three and six months ended December 24, 2023, respectively.

For the three and six months ended December 24, 2023, the number of international Pizza Inn units decreased by four

and 16 units, respectively.

There were zero and zero transfers in the total international Pizza Inn unit count during the three and six months ended December 24, 2023, respectively.

The Company believes the number of both domestic and

international Pizza Inn units will increase modestly in future periods.

Pie Five Brand Summary

The following tables summarize certain key indicators for the Pie Five franchised restaurants that management believes are useful in evaluating performance:

Three Months Ended

Six Months Ended

December 24, 2023

December 25, 2022

December 24, 2023

December 25, 2022

(in thousands, except unit data)

Pie Five Retail Sales - Total Units

Total Domestic Retail Sales

Pie Five Comparable Store Retail Sales - Total

Pie Five Average Units Open in Period

Total Domestic Units

Pie Five total domestic retail sales decreased $0.6 million, or 11.4%, for the three months ended December 24, 2023 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 31 to 25.

Comparable store retail sales remained relatively stable at $4.3 million during the second quarter of fiscal 2024 compared to the same period of

the prior year.

For the three months ended December 24, 2023, the decrease in domestic retail sales were primarily the result of the decrease in store count, offset by an increase in comparable store retail sales.

For the six months ended

December 24, 2023, the decrease in domestic retail sales were primarily the result of the decrease in store count, offset by a increase in comparable store retail sales.

The following chart summarizes Pie Five restaurant activity for the three and six months ended December 24, 2023:

Three Months Ended December 24, 2023

Total Domestic Units

Six Months Ended December 24, 2023

Total Domestic Units

There was a net decrease of two and three units in the total domestic Pie Five unit count during the three and six months ended December 24, 2023, respectively.

There was a net

increase of one and one Pie Five Ghost Kitchen Units during the three and six months ended December 24, 2023, respectively.

We believe that Pie Five units will decrease modestly in future periods.

Financial Results

The Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising.

The following is additional business segment information for the three and six months

ended December 24, 2023 and December 25, 2022 (in thousands):

Three Months Ended December 24, 2023 and December 25, 2022

Fiscal Quarter Ended

Franchise and license revenues

Rental income

Interest income and other

Total revenues

COSTS AND EXPENSES:

General and administrative expenses

Franchise expenses

Bad debt expense

Depreciation and amortization expense

Total costs and expenses

INCOME/(LOSS) BEFORE TAXES

Six Months Ended December 24, 2023 and December 25, 2022

Fiscal Year-to-Date

Franchise and license revenues

Rental Income

Interest income and other

Total revenues

COSTS AND EXPENSES:

General and administrative expenses

Franchise expenses

Impairment of long-lived assets and other lease charges

Bad debt expense

Interest expense

Depreciation and amortization expense

Total costs and expenses

INCOME/(LOSS) BEFORE TAXES

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 December 24, 2023 and for the same period of the prior fiscal year were $2.8 million and $2.9 million, respectively.

Total revenues for the six month period ended December 24, 2023 and for the same period of the prior fiscal year were $5.9 million and $5.9 million, respectively.

Pizza Inn Franchise and License

Pizza Inn franchise revenues decreased by $0.1 million to $2.3 million for the three month period ended December 24, 2023 as compared to the same period in the prior fiscal year.

The 3.4% decrease was driven by decreases in supplier incentives, offset by increases in domestic royalties.

Pizza Inn franchise revenues increased by $0.1 million to $4.9 million for the six month period ended December 24, 2023 as compared to

the same period in the prior fiscal year.

The 1.1% increase was driven by increases in domestic royalties and default and closed store revenues.

Pie Five Franchise and License

Pie Five franchise revenues decreased by $0.1 million to $0.4 million for the three month period ended December 24, 2023 as compared to the same period of the prior fiscal year.

The 6.9% decrease was driven by decreases in domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues.

Pie Five franchise revenues decreased by $0.1 million to $0.9 million for the six month

period ended December 24, 2023 as compared to the same period of the prior fiscal year.

The 8.9% decrease was driven by decreases in domestic royalties, advertising fund revenues, and supplier and distributor incentives, offset by increases in

default and closed store revenues.

General and Administrative Expenses

Total general and administrative expenses decreased by $0.1 million to $1.3 million for the three month period ended December 24, 2023 as compared to the same period of the prior

The 7.7% decrease in total general and administrative expenses during the three month period was primarily the result of decreased corporate expenses.

Total general and administrative expenses decreased by $0.1 million to $2.7

million for the six month period ended December 24, 2023 as compared to the same period of the prior fiscal year.

The 4.9% decrease in total general and administrative expenses during the six month period was primarily the result of decreased

corporate expenses.

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 decreased by $0.02 million to $0.8 million for the three month period ended December 24, 2023 as compared to the same period of the prior fiscal year.

The 2.7% decrease was primarily due to a decrease in advertising fees.

Total franchise

expenses decreased by $0.05 million to $2.0 million for the six month period ended December 24, 2023 as compared to the same period of the prior fiscal year.

The 2.6% decrease was primarily due to a decrease in advertising fees.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges was zero for the three month period ended December 24, 2023 compared to zero for the same period of the prior fiscal year.

Impairment of long-lived assets and other lease charges was zero for the six month period ended December 24, 2023 compared to $5 thousand for the same period of the prior fiscal year.

The decrease was primarily due to impaired beverage equipment

in the prior period.

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.

For the three

month period ended December 24, 2023, bad debt expense was $10 thousand compared to bad debt expense of $5 thousand for the same period of the prior fiscal year.

Bad debt expense for the six month period ended December 24, 2023, increased by $26

thousand to $35 thousand compared to the same period of the prior fiscal year.

Interest Expense

Interest expense was zero for the three month period ended December 24, 2023 compared to the same period of the prior fiscal year.

Interest expense decreased by $1 thousand to

zero for the six month period ended December 24, 2023 compared to the same period of the prior fiscal year.

Amortization and Depreciation Expense

Amortization and depreciation expense increased slightly for the three and six months ended December 24, 2023, compared to the same periods of the prior year.

In both cases, the

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

Provision for Income Taxes

For the three and six months ended December 24, 2023, the Company recorded an income tax benefit of $13 thousand and a tax expense of $119 thousand, respectively.

For the three and six months ended December 25, 2022, the Company recorded an income tax expense of $140 thousand and $232 thousand, respectively.

The decrease for the three and six months ended as of December 24, 2023 was primarily due

to a decrease in state taxes.

For the three months ended December 24, 2023, the federal tax benefit was $23 thousand and the state tax expense was $10 thousand.

months ended December 24, 2023, the federal and state tax expense were $85 thousand and $34 thousand, respectively.

For the three months ended December 25, 2022, the federal and state tax expense were $100 thousand and $40 thousand,

respectively.

For the six months ended December 25, 2022, the federal and state tax expense were $182 thousand and $50 thousand, respectively.

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 six month period ended December 24, 2023, 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 $0.3 million for the six month period ended December 24, 2023 compared to cash provided by operating activities

of $0.8 million for the six month period ended December 25, 2022.

The primary driver of decreased operating cash flow during the six month period ended December 24, 2023 was increased collections of accounts receivable related to the employee

retention credit in the prior year.

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

Cash used in investing activities

during the six month period ended December 24, 2023 was nil compared to cash used in investing activities of $0.1 million for the six months ended December 25, 2022.

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

Net cash used in financing activities was $0.3

million for the six month period ended December 24, 2023 compared to net cash used in financing activities of $5.0 million for the six month period ended December 25, 2022.

Net cash used by financing activities for the six months ended December

24, 2023 was primarily attributable to taxes paid on vested RSUs.

Net cash used by financing activities for the six months ended December 25, 2022 was primarily attributable to repurchases of the Company's 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.

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

Critical Accounting Policies and Estimates

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

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

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

Estimates and

assumptions are reviewed periodically.

Actual results could differ materially from estimates.

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

therefore require subjective judgments.

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

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

The Company records an allowance for credit losses to allow for

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

Actual realization of accounts receivable could differ materially from the

Company’s estimates.

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

Impairment is

evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying 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.

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

convention contribution revenues.

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

Royalties and advertising fund

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

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”

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.

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 December 24, 2023 and December 25, 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.

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

Quantitative and Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.

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

What changed 10-Q

Item 1. Financial Statements