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Item 7. Management’s Discussion and Analysis

2024-09-26 compared with 2023-09-21 · 187 added, 214 removed, 129 unchanged (76% 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 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):

The Company franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”), express (“Express Units”) restaurants and ghost kitchens (“Pizza Inn Ghost Kitchen

Units”) 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.

At June 30, 2024, franchised and licensed restaurants consisted of the following:

Fiscal Year Ended June 30, 2024

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Domestic Franchised/Licensed

Company-Owned

Total Domestic Units

International Franchised

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countries predominantly in the Middle East.

Fiscal years 2024 and 2023 included 53 weeks and 52 weeks, respectively.

In order to reflect comparable 53 week periods, the first week of fiscal 2024 has been included in

both periods in the presentation of retail sales, average units open and comparable store retail sales.

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

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Total Rave Comparable Store Retail Sales

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

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

Results of operations for the fiscal years 2023 and 2022 both included 52 weeks.

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.

Federal, state and local responses to the COVID-19 pandemic, as well as our internal efforts to protect customers, franchisees, and employees, severely disrupted our business operations.

Further, the COVID-19 pandemic

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

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

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

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

53 Weeks Ended

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(in thousands, except unit data)

Domestic Units

Buffet Units - Franchised

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PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Retail Sales

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Pizza Inn Average Units Open in Period

Domestic Units

Buffet Units - Franchised

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PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Units

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 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.

Pizza Inn total domestic retail sales increased by $3.9 million, or 3.8%, for fiscal 2024 when compared to the prior 53 weeks.

Compared to the prior year, average Buffet Units

open in the period increased from 73 to 76.

Comparable store retail sales increased by $2.3 million to $100.9 million for fiscal 2024 as compared to the prior 53 weeks.

For fiscal 2024, 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 fiscal year ended June 30, 2024:

Fiscal Year Ended June 30, 2024

Domestic Units:

Beginning Units

Concept Change

Buffet Units - Franchised

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PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Units

International Units (all types)

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.

There was a net decrease of 18 units in the total domestic Pizza Inn unit count during fiscal 2024.

There were four transfers in the total domestic Pizza Inn unit count during

For fiscal 2024, the number of international Pizza Inn units decreased by 10 units.

Twelve units were terminated in Saudi Arabia for failure to pay royalties and subsequently a 50-unit development agreement was signed with a

new franchise partner who opened five Pizza Inn units in Saudi Arabia in fiscal year 2024.

There were zero transfers in the total international Pizza Inn unit count during fiscal 2024.

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 and Company-owned restaurants that management believes are useful in evaluating performance.

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

53 Weeks Ended

(in thousands, except unit data)

Pie Five Retail Sales - Total Units

Domestic Units - Franchised

(in thousands, except unit data)

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Retail Sales

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Pie Five Average Units Open in Period

Domestic Units - Franchised

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Units

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 comparable store retail

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

Pie Five total domestic retail sales decreased by $3.5 million, or 17.2%, for fiscal 2024 when compared to the prior year.

Compared to the prior year, average units open in

the period decreased from 30 to 25.

Comparable store retail sales decreased by $0.6 million to $16.8 million for fiscal 2024 as compared to the prior year.

For fiscal 2024, the decrease in domestic retail sales were primarily the result of

the decrease in store count, supplemented by a decrease in comparable store retail sales.

The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 30, 2024:

Fiscal Year Ended June 30, 2024

Domestic - Franchised

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Units

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

The was a net decrease of seven units in the total domestic Pie Five unit count during fiscal 2024.

There was a net increase of one Pie Five Ghost Kitchen Units during fiscal

Two Pie Five units converted to become Pizza Inn Buffet units.

Of the seven Pie Five closures, two were due to lease expirations, one was closed by mutual decision of the franchise owner and Rave management, and four were unilaterally

closed by franchise owner decision.

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

Non-GAAP Financial Measures and Other Terms

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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.

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.

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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 the meaning and are calculated as follows:

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.

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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.

“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.

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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.

“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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Financial Results

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

Company-Owned

Fiscal Year Ended

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

The following is additional business segment information for the Fiscal Years

ended June 30, 2024 and June 25, 2023 (in thousands):

Fiscal Year Ended

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Fiscal Year Ended

June 26, 2022

Franchise and license revenues

Rental income

Interest income and other

Total revenues

COSTS AND EXPENSES:

Cost of sales

General and administrative expenses

Franchise expenses

Impairment of long-lived assets

and other lease charges

Bad debt expense

Interest expense

Impairment of long-lived assets and other lease charges

Provision for credit losses

Interest (income) expense

Depreciation and amortization expense

Total costs and expenses

OTHER INCOME:

Employee retention credit

Total other income

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.

Revenues are derived from franchise royalties, supplier and distributer incentives, franchise license fees, area development exclusivity fees and foreign master license fees,

advertising funds, supplier convention funds, sublease rental income, and other income.

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 2024 and fiscal 2023 were $12.2 million and $11.9 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.

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 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 2023 or fiscal 2022 because we closed our single remaining

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

Pizza Inn Franchise and License

Pizza Inn franchise revenues increased by $0.5 million to $10.3 million for fiscal 2024 as compared to $9.8 million for fiscal 2023.

The 4.9% increase was driven by increases

in supplier and distributor incentives.

Pie Five Franchise and License

Pie Five franchise revenues decreased by $0.2 million to $1.7 million for fiscal 2024 as compared to $1.9 million for fiscal 2023.

The 8.7% decrease was driven by decreases in

domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues.

Costs and Expenses:

Cost of Sales

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 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 $5.5 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.

Total general and administrative expenses decreased by $0.2 million to $5.3 million for fiscal 2024 as compared to $5.5 million for fiscal 2023.

decrease was driven by decreased salary and stock-based compensation expense.

Franchise Expenses

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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 of zero in fiscal 2023 remained essentially unchanged from the prior year.

Bad Debt Expense

expenses decreased by $0.3 million to $3.7 million in fiscal 2024 as compared to $4.0 million for fiscal 2023.

Pizza Inn franchise expenses decreased $0.1 million to $3.0 million for fiscal 2024 compared to $3.1 million for fiscal 2023.

2.4% decrease was driven by decreases in advertising fees.

Pie Five franchise expenses decreased $0.2 million to $0.7 million for fiscal 2024 compared to $0.9 million for fiscal 2023.

The 25.2% decrease was driven by decreases in advertising

fees and salaries.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges was zero for fiscal 2024 compared to $5 thousand for fiscal 2023.

The decrease was primarily due to impaired beverage

equipment in the prior period.

Provision for Credit Losses

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

Interest expense decreased $60 thousand for fiscal 2023 to $1 thousand compared to $61 thousand in the prior year.

Provision for

credit losses decreased by $4 thousand to $69 thousand for fiscal 2024 as compared to $73 thousand for fiscal 2023.

The 4.7% decrease was driven by the write-off of bad debt, partially offset by the increase in accounts over 90 days.

Interest Expense and Income

Interest expense decreased $1 thousand for fiscal 2024 to zero compared to $1 thousand in the prior year.

Interest income increased $153 thousand for fiscal 2024 to $153

thousand compared to zero in the prior year.

The increase was primarily driven by interest received on U.S.

Treasury bills.

Amortization and Depreciation Expense

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

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 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.

Amortization and depreciation expense increased slightly for fiscal 2024, compared to fiscal 2023.

The increase was primarily the result of higher amortization of intangible

assets from an increase in expenditures for developing a new prototype.

Provision for Income Taxes

Total income tax expense consists of the following (in thousands):

Fiscal Year Ended

June 30, 2024

June 25, 2023

Federal tax expense

State tax expense

Total income tax expense

For the year ended June 30, 2024, the Company recorded an income tax expense of $619 thousand.

The federal and state tax expense was $530 thousand and $89

thousand, respectively.

The change in both federal and state tax expense was primarily driven by the increase in net income, utilization of jurisdictional operating losses and a current year tax deduction for stock-based compensation.

Company utilized net operating losses to offset federal taxes.

At the end of tax year ended June 30, 2024, the Company had federal net operating loss carryforwards totaling $18.9 million that are available to reduce future taxable income

and will begin to expire in 2035.

Under the Tax Cuts and Jobs Act, approximately $1.3 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, 2021 through June 25, 2023.

Tax years that remain subject to examination by state authorities are the years ended June 30, 2020 through June 25, 2023.

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.

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

Future sources of

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

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.

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

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.

Basic net income per common share increased $0.06 to net income of $0.17 per share for fiscal 2024 compared to a net income of $0.11 per share in the prior fiscal year.

Diluted net income per

common share increased $0.07 to net income of $0.17 per share for fiscal 2024 compared to a net income of $0.10 per share in the prior fiscal year.

Net income increased $0.9 million to net income of $2.5 million for fiscal 2024 compared to a

net income of $1.6 million for the prior fiscal year on revenues of $12.2 million for fiscal 2024 as compared to $11.9 million in fiscal 2023.

Adjusted EBITDA for the fiscal year ended June 30, 2024, increased to $3.2 million compared to $2.7 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

Interest (income) expense

Depreciation and amortization

Stock-based compensation expense

Impairment of long-lived assets and other lease charges

Franchisee default and closed store revenue

Adjusted EBITDA

Results of operations for the fiscal years 2024 and 2023 included 53 weeks and 52 weeks, respectively.

Liquidity and Capital Resources

Sources and Uses of Funds

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

During fiscal 2024, 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 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.

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.

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, 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.

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 25, 2023 and June 26, 2022, there were

no Notes outstanding.

stock-based compensation, and changes in working capital.

Cash provided by operating activities was $2.7 million in fiscal 2024 compared to cash provided by operating activities of $2.6 million in fiscal 2023.

The primary driver of increased

operating cash flow during fiscal 2024 was increased net income due to lower employee related expenses.

Cash flows from investing activities reflect purchases and maturities of short term investments as well as net proceeds from the sale of assets and capital expenditures for

the purchase of Company assets.

Cash used in investing activities during fiscal 2024 was $4.9 million compared to cash used in investing activities of $15 thousand in fiscal 2023.

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 fiscal 2024 compared to net cash used in financing activities of $5.0 million for fiscal 2023.

Net cash used by financing activities in fiscal 2024 was primarily attributable to taxes paid on vested

Restricted Stock Units (“RSUs”).

Net cash used by financing activities in fiscal 2023 was primarily attributable to repurchases of the Company’s stock.

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

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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.

and assumptions are reviewed periodically.

Estimates and

assumptions are reviewed periodically.

Actual results could differ materially from estimates.

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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 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.

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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 $5 thousand and $6 thousand during fiscal 2023 and 2022, respectively.

The Company had $0.2 million in

sublease income during fiscal 2023 and 2022.

The Company recognized pre-tax, non-cash impairment charges of zero and $5 thousand during fiscal 2024 and 2023, respectively.

The Company had $0.1 million and $0.2

million in sublease income during fiscal 2024 and 2023, respectively.

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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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.

In the event of a closed

franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default.

Royalties and advertising fund revenues, which are based on a percentage

of franchise retail sales, are recognized as income as retail sales occur.

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

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temporary differences, and tax planning strategies.

The Company assess 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.

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.

In making such assessment, more weight is given to

evidence that can be objectively verified, including recent operating performance.

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

The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present,

and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return.

ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely

than not” threshold, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of

being realized upon ultimate settlement.

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 30, 2024 and June 25, 2023, the Company had no uncertain tax positions.

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The Company determines if an arrangement is a lease at inception of the arrangement.

To the extent that it can be determined that an arrangement represents a lease, it is classified as either an

operating lease or a finance lease.

To the extent that it can be determined that an arrangement represents a lease, it is classified as either

an operating lease or a finance lease.

The Company does not currently have any finance leases.

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.

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 does not presently have any short-term leases.

Operating lease right of use assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term.

In addition to the

present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred.

Lease expense for operating lease

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

In addition to

the present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred.

Lease expense for

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis