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Item 1. Financial Statements

2024-11-07 compared with 2024-05-02 · 191 added, 525 removed, 267 unchanged (73% of the section changed)

1 unchanged sentence

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED

STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF

(In thousands , except per share amounts)

Three Months Ended

Nine Months Ended

September 29 ,

September 24 ,

COSTS AND EXPENSES

1 unchanged sentence

Franchise expenses

Impairment of long-lived assets and other lease charges

Provision for credit losses

Interest (income) expense

Provision (recovery) for credit losses

Interest income

Depreciation and amortization expense

2 unchanged sentences

Income tax expense

INCOME PER SHARE OF COMMON STOCK - BASIC

INCOME PER SHARE OF COMMON STOCK - DILUTED

Weighted average common shares outstanding - basic

Weighted average common shares outstanding - diluted

INCOME PER SHARE OF COMMON STOCK

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED

(In thousands , except share amounts)

September 29 ,

CURRENT ASSETS

Cash and cash equivalents

Short-term investments

Accounts receivable, less allowance for credit losses of $ 40

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CONDENSED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’

SHAREHOLDERS’ EQUITY

(In thousands )

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Stock-based compensation expense

Purchase of treasury stock

Balance, September 24, 2023

Stock-based compensation expense

Purchase of treasury stock

Balance, December 25, 2022

Stock-based compensation expense

Balance, March 26, 2023

Treasury Stock

2 unchanged sentences

Balance, September 29, 2024

Stock-based compensation expense

RSU vested and taxes paid on RSUs

Balance, December 24, 2023

Stock-based compensation expense

Balance, March 24, 2024

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands )

Nine Months Ended

Three months ended

September 29 ,

September 24 ,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to cash provided by operating activities:

Impairment of long-lived assets and other lease charges

Amortization of discount on short-term investment

Stock-based compensation expense

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Amortization of operating right-of-use assets

Amortization of intangible assets definite-lived

Provision for credit losses

Amortization of definite-lived intangible assets

Non-cash lease expense

Provision (recovery) for credit losses

Deferred income tax

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CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of short-term investments

Maturities of short-term investments

Payments received on notes receivable

Proceeds from sale of assets

Purchase of intangible assets definite-lived

Purchase of definite-lived intangible assets

Purchase of property and equipment

Cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

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)/increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH (REFUNDED) PAID FOR:

CASH PAID FOR:

Income taxes (net of refunds)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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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 “Pie Five”.

Units”), delivery/carry-out (“Delco Units”), express restaurants (“Express Units”) 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.

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”).

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.

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

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 30, 2024.

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

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The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Short-Term Investments

The Company holds short-term investments in treasury bills, classified as trading securities.

Accordingly, interest income is recorded through the Condensed

Consolidated Statements of Income, when earned.

Management has elected to classify all treasury bills as short-term, regardless of their maturity dates, as these are readily available to fund current operations and can be liquidated at any

time at the discretion of the Company.

As of September 29, 2024 and June 30, 2024, the Company held treasury bills valued at $ 7.1

million and $ 4.9 million, respectively, which are included within short-term investments on the accompanying Condensed Consolidated

Balance Sheets.

For the three months ended September 29, 2024 and September 24, 2023, interest income recognized on the treasury bills was $ 76

thousand and $ 2 thousand, respectively.

Fair Value Measurements

Assets and liabilities carried at fair value are categorized based on the level of judgment associated with the inputs used to measure their fair value.

Authoritative guidance for fair value measurements establishes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three levels:

Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities at the measurement date.

Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date for the

duration of the instrument’s anticipated life.

Inputs are unobservable and therefore reflect management’s best estimate of the assumptions that market participants would use in pricing the asset or liability.

The fair value of the Company’s investments in U.S.

Treasury bills at September 29, 2024 and September 24, 2023, was determined using level 1

observable inputs.

Management believes the carrying amounts of other financial instruments at September 29, 2024 and September 24, 2023, including cash, accounts receivable, accounts payable, and accrued expenses are representative of their

fair values due to their short-term maturities.

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value at September 29, 2024:

Fair Value Measurements

Treasury bills

The Company did no t have any

financial assts or liabilities at September 24, 2023 that were measured at fair value.

The Company has no financial assets

or liabilities classified within Level 3 of the valuation hierarchy.

These items are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement.

assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.

Accounts Receivable and Allowance for Credit Losses

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

After all attempts to collect a receivable have

failed, the receivable is written off against the allowance.

Finance charges may be accrued at a rate of 18 % per year, or up to

the maximum amount allowed by law, on past due receivables.

The interest income recorded from finance charges is immaterial.

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 September 29, 2024, recoveries for credit losses was $ 17 thousand compared

to provision for credit losses of $ 25 thousand for the same period in the prior fiscal year.

During the three month period ended

September 29, 2024, the Company recorded a gain in provision for credit losses due to the recoveries of receivables that had been previously reserved.

Changes in the allowance for credit losses from continuing operations consisted of the following (in thousands):

September 29, 2024

September 24, 2023

Beginning balance

Provision (recovery) for credit losses

Amounts written off

Ending balance

Fiscal Quarters

The three and nine month periods ended March 24, 2024 and March 26, 2023 each contained 13 weeks and 39 weeks, respectively.

The three month periods ended September 29, 2024 and September 24, 2023 each contained 13 weeks.

Use of Management Estimates

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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.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued

Accounting Standards Update (“ASU” or “standard”) 2023-07, Segment Reporting:

Improvements to Reportable Segment Disclosures (Topic 280), which requires companies to enhance disclosure of significant reportable segment expenses.

guidance is effective for the Company after December 15, 2024.

Management believes that adopting this standard will not have a material impact on the Company’s consolidated financial statements and related disclosures as a result of

adopting this standard.

In December 2023, FASB issued ASU 2023-09, Income Taxes:

Improvements to

Income Tax Disclosures (Topic 740), which requires companies to provide a more granular breakdown of the components that make up their effective tax rate and additional disclosures about the nature and effect of significant reconciling

The new guidance is effective for the Company after December 15, 2024.

Management believes that adopting this standard will not have a material impact on the Company’s consolidated financial statements and related disclosures as a

result of adopting this standard.

Revenue Recognition

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Franchise revenues consist of 1) franchise royalties, 2) supplier and distributor incentive revenues, 3) franchise license fees, 4) area

development exclusivity fees and foreign master license fees, 5) advertising funds, and 6) supplier convention funds.

Franchise royalties, which are based on a percentage of franchise restaurant sales, are recognized as sales occur.

development exclusivity fees and foreign master license fees, 5) advertising fund contributions, and 6) supplier convention funds.

Franchise royalties, which are based on a percentage of net retail sales, are recognized as sales occur.

Supplier and distributor incentive revenues are recognized when title to the underlying commodities transfer.

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

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 .

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

Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign

master license agreements.

Area development exclusivity fees are included in deferred revenue in the accompanying Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development

agreement as the stores are opened.

Area development exclusivity fees that include rights to sub-franchise are amortized as revenue over the term of the contract.

In the event of a closed franchise or terminated development agreement, the remaining balance of unamortized

license fees will be recognized in entirety as of the date of the closure or termination.

Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign master license agreements.

Area development exclusivity fees are included in deferred revenue in the

accompanying Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement as the stores are opened.

Area development exclusivity fees that include rights to

sub-franchise are amortized as revenue over the term of the contract.

Advertising fund contributions for Pizza Inn and Pie Five units represent contributions collected where we have control over the activities

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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.

agreement is non-cancelable 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

2 unchanged sentences

Three Months Ended

March 24, 2024

March 26, 2023

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

Rental income

Nine Months Ended

March 24, 2024

March 26, 2023

September 29, 2024

September 24, 2023

Franchise royalties

2 unchanged sentences

Area development exclusivity fees and foreign master license fees

Advertising funds contributions

Advertising fund contributions

Supplier convention funds

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

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.

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

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 Condensed Consolidated Balance Sheets through a right of use

asset and a corresponding lease liability.

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

Short-term leases that have an initial term of one year or less are not capitalized.

The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right-of-use asset and a

corresponding lease liability.

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

Short-term leases that have an initial term of one

year or less are not capitalized.

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

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.

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.

Nature of Leases

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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.

agreement is non-cancelable

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

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

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

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

Accordingly, we recognize lease

payments related to our short-term leases in our income statements on a straight-line basis over the lease term which has not changed from our prior recognition.

To the extent that there are variable lease payments, we recognize those

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

The components of total lease expense for the three and nine months ended March 24, 2024 and March 26, 2023, the majority of which is

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

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

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

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

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

To the extent that there are variable lease payments, we recognize those payments in our income statements in

the period in which the obligation for those payments is incurred.

The components of total lease expense for the three months ended September 29, 2024 and September 24, 2023, where operating lease cost is included in general and administrative expense and sublease income is included in revenues in the accompanying Condensed Consolidated Statements of Income, are as follows (in thousands ):

Three Months Ended

Nine Months Ended

March 24, 2024

March 26 , 2023

March 24 , 2024

March 26 , 2023

September 29, 2024

September 24 , 2023

Operating lease cost

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

March 26 , 2023

September 29,

September 24 , 2023

Weighted average remaining lease term

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For the three

and nine months ended March 24, 2024, the Company recognized stock-based compensation expense related to stock options of zero

and zero , respectively.

For the three and nine months ended March 26, 2023, the Company recognized stock-based compensation

expense related to stock options of $ 4 thousand and $ 11 thousand, respectively.

As of March 24, 2024, there was no

unamortized stock-based compensation expense related to stock options.

months ended September 29, 2024 and September 24, 2023, the Company recognized stock-based compensation expense related to stock options of zero .

As of September 29, 2024, 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:

Nine Months Ended

March 24, 2024

March 26, 2023

Three months ended

September 29, 2024

September 24, 2023

Outstanding at beginning of year

3 unchanged sentences

Restricted Stock Units:

For the three and nine months ended March 24, 2024, the Company had stock-based compensation expense related to RSUs of $ 45 thousand and $ 127 thousand,

respectively.

For the three and nine months ended March 26, 2023, the Company had stock-based compensation expense related to RSUs of $ 82

thousand and $ 248 thousand, respectively.

As of March 24, 2024, there was $ 283 thousand unamortized stock-based compensation expense related to RSUs.

As of March 24, 2024, the RSUs will be amortized during the next seven months .

A summary of the status of restricted stock units as of March 24, 2024 and March 26, 2023, and changes during the nine months then ended is presented

Nine Months Ended

March 24, 2024

March 26, 2023

For the three months ended September 29, 2024 and September 24, 2023, the Company had stock-based compensation expense related to RSUs of

$ 73 thousand and $ 79

thousand, respectively.

As of September 29, 2024, there was $ 191 thousand unamortized stock-based compensation expense related to

As of September 29, 2024 and September 24, 2023, the RSUs will be amortized during the next 25 and one month s, respectively.

A summary of the status

of RSUs as of September 29, 2024, and changes during the three months then ended is presented below:

Three months ended

September 29, 2024

September 24, 2023

Unvested at beginning of year

Forfeited/Canceled

Unvested at March 24, 2024

Performance adjustment

Unvested at September 29, 2024

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

Nine Months Ended

March 24, 2024

March 26, 2023

March 24, 2024

March 26, 2023

Net income available to common stockholders

September 29, 2024

September 24, 2023

Net income available to common shareholders

Weighted average common shares

1 unchanged sentence

Weighted average common shares

Dilutive stock options

Dilutive stock options and restricted stock units

Weighted average common shares outstanding

Net income per common share

For the three and nine months ended March 24, 2024, 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 nine months ended March 24, 2024, 65,625 and 156,250 RSUs were excluded from the computation of

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

For the three and nine months ended March 26, 2023, 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 nine months ended March 26, 2023, zero and zero RSUs were excluded from the computation of

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

For the three months ended September 29, 2024, exercisable options to purchase 71,886 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 29, 2024, 105,000

RSUs were excluded from the computation of diluted EPS because performance criteria is not probable at period end.

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.

Note F - Income Taxes

1 unchanged sentence

Three months ended

September 29,

September 24,

Federal tax expense

1 unchanged sentence

Total income tax expense

For the three and nine

months ended March 24, 2024, the Company recorded an income tax expense of $ thousand and $ thousand, respectively.

For the three and nine months ended March 26, 2023, the Company recorded an income tax expense of $ thousand and $

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.

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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, (2) Pie Five Franchising and

(3) Corporate administration and other.

(1) Pizza Inn

Franchising, (2) Pie Five Franchising and (3) Corporate administration and other .

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.

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.

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.

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.

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 and nine months ended March 24, 2024 and March 26, 2023 (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 months ended

September 29, 2024 and September 24, 2023 (in thousands) :

Three Months Ended

Nine Months Ended

March 24, 2024

March 26, 2023

March 24, 2024

March 26, 2023

September 29, 2024

September 24, 2023

Net sales and operating revenues:

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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, our Annual Report on Form 10-K for the year ended June 25, 2023, together with our Quarterly Reports on Form 10-Q for the periods ended September 24, and December 24, 2023, 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, as well as our Quarterly Reports on Form 10-Q for the periods

ended September 24, and December 24, 2023.

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

The forward-looking statements contained herein

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

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

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”), 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 March 24, 2024, franchised and licensed units consisted of the following:

Three Months Ended March 24, 2024

(in thousands, except unit data)

Domestic Franchised/Licensed

International Franchised

Nine Months Ended March 24, 2024

(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 March 24, 2024, compared to the comparable period in the prior fiscal year.

Company had net income of $0.7 million for the three months ended March 24, 2024 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $3.0 million for the three months ended March 24, 2024

compared to $3.0 million in the comparable period in the prior fiscal year.

The stability in revenue was primarily due to increases in supplier and distributor incentives, offset by a decrease in domestic royalties.

Basic net income per share increased $0.05 per share to $0.11 per share for the nine months ended March 24, 2024, compared to the comparable period in the prior fiscal year.

Company had net income of $1.6 million for the nine months ended March 24, 2024 compared to net income of $1.0 million in the comparable period in the prior fiscal year, on revenues of $8.8 million for the nine months ended March 24, 2024

compared to $8.8 million in the comparable period in the prior fiscal year.

The revenue was consistent primarily due to increases in international default and closed store revenues, offset by a decrease in international royalties.

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 March 24, 2024 increased $0.2 million compared to the same period of the prior fiscal year.

Year-to-date Adjusted EBITDA increased

$0.3 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

Nine Months Ended

March 24, 2024

March 26, 2023

March 24, 2024

March 26, 2023

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

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

Nine Months Ended

March 24, 2024

Pizza Inn Retail Sales - Total Domestic Units

(in thousands, except unit data)

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Retail Sales

Pizza Inn Comparable Store Retail Sales - Total Domestic

Pizza Inn Average Units Open in Period

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Units

Pizza Inn total domestic retail sales increased by $0.2 million, or 0.9%, for the three months ended March 24, 2024 when compared to the same period of the prior year.

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

Comparable store retail sales decreased by $0.5 million to $24.7 million for the three month period ended March 24, 2024 as compared to

the same period of the prior fiscal year.

For the three months ended March 24, 2024, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, offset by a decrease in comparable domestic store retail sales.

Pizza Inn total domestic retail sales increased by $4.2 million, or 5.7%, for the nine months ended March 24, 2024 when compared to the same period of the prior year.

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

Comparable store retail sales increased by $2.7 million to $73.7 million for the nine month period ended March 24, 2024 as compared to the

same period of the prior fiscal year.

For the nine months ended March 24, 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

The following chart summarizes Pizza Inn restaurant activity for the three and nine months ended March 24, 2024:

Three Months Ended March 24, 2024

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Units

International Units (all types)

Nine Months Ended March 24, 2024

Buffet Units - Franchised

Delco/Express Units - Franchised

PIE Units - Licensed

Pizza Inn Ghost Kitchen Units - Franchised

Total Domestic Units

International Units (all types)

There was a net decrease of eight and 19 units in the total domestic Pizza Inn unit count during the three and nine months ended March 24, 2024, respectively.

There were one and four transfers in

the total domestic Pizza Inn unit count during the three and nine months ended March 24, 2024, respectively.

For the three and nine months ended March 24, 2024, the number of international Pizza Inn units increased by three and decreased by 13

units, respectively.

There were zero transfers in the total international Pizza Inn unit count during the three and nine months ended March 24, 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 restaurants that management believes are useful in evaluating performance:

Three Months Ended

Nine Months Ended

March 24, 2024

(in thousands, except unit data)

Pie Five Retail Sales - Total Units

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Retail Sales

Pie Five Comparable Store Retail Sales - Total

Pie Five Average Units Open in Period

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Units

Pie Five total domestic retail sales decreased $1.2 million, or 24.3%, for the three months ended March 24, 2024 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 24.

Comparable store retail sales decreased by $0.3 million to $3.8 million during the third quarter of fiscal 2024 compared to the same period of

the prior year.

For the three months ended March 24, 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.

For the nine months ended

March 24, 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 three and nine months ended March 24, 2024:

Three Months Ended March 24, 2024

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Units

Nine Months Ended March 24, 2024

Pie Five Units - Franchised

Pie Five Ghost Kitchen Units - Franchised

Total Domestic Units

There was a net decrease of one and four units in the total domestic Pie Five unit count during the three and nine months ended March 24, 2024, respectively.

There was a net

increase of zero and one Pie Five Ghost Kitchen Units during the three and nine months ended March 24, 2024, 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 nine

months ended March 24, 2024 and March 26, 2023 (in thousands):

Three Months Ended March 24, 2024 and March 26, 2023

Fiscal Quarter Ended

Franchise and license revenues

Rental income

Total revenues

COSTS AND EXPENSES:

General and administrative expenses

Franchise expenses

Provision for credit losses

Interest income

Depreciation and amortization expense

Total costs and expenses

INCOME/(LOSS) BEFORE TAXES

Nine Months Ended March 24, 2024 and March 26, 2023

Fiscal Year-to-Date

Franchise and license revenues

Rental income

Total revenues

COSTS AND EXPENSES:

General and administrative expenses

Franchise expenses

Impairment of long-lived assets and other lease charges

Provision for credit losses

Interest (income) 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, and interest 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 the three month period ended March 24, 2024 and for the same period of the prior fiscal year were $3.0 million and $3.0 million, respectively.

Total revenues for the nine month period ended March 24, 2024 and for the same period of the prior fiscal year were $8.8 million and $8.8 million, respectively.

Pizza Inn Franchise and License

Pizza Inn franchise revenues remained relatively stable at $2.5 million for the three month period ended March 24, 2024 as compared to the same period in the prior fiscal year.

The 2.0% increase was driven by increases in supplier and distributor incentives, offset by decreases in domestic royalties.

Pizza Inn franchise revenues increased by $0.1 million to $7.4 million for the nine month period ended March 24, 2024 as

compared to the same period in the prior fiscal year.

The 1.4% increase was driven by increases in supplier and distributor incentives.

Pie Five Franchise and License

Pie Five franchise revenues decreased by $0.1 million to $0.4 million for the three month period ended March 24, 2024 as compared to the same period of the prior fiscal year.

5.6% decrease was driven by decreases in domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues and supplier and distributor incentives.

Pie Five franchise revenues decreased by $0.1 million to

$1.3 million for the nine month period ended March 24, 2024 as compared to the same period of the prior fiscal year.

The 7.9% decrease was driven by decreases in domestic royalties and advertising fund revenues, offset by increases in default and

closed store revenues.

General and Administrative Expenses

Total general and administrative expenses decreased by $0.2 million to $1.3 million for the three month period ended March 24, 2024 as compared to the same period of the prior

The 14.4% decrease in total general and administrative expenses during the three month period was primarily the result of decreased salaries.

Total general and administrative expenses decreased by $0.4 million to $3.9 million for the

nine month period ended March 24, 2024 as compared to the same period of the prior fiscal year.

The 8.2% decrease in total general and administrative expenses during the nine month period was primarily for the same reason.

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 $0.2 million to $0.8 million for the three month period ended March 24, 2024 as compared to the same period of the prior fiscal year.

The 15.8% decrease was primarily due to a decrease in advertising fees.

Total franchise

expenses decreased by $0.2 million to $2.8 million for the nine month period ended March 24, 2024 as compared to the same period of the prior fiscal year.

The 6.8% 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 March 24, 2024 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 nine month period ended March 24, 2024 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.

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.

For the three

month period ended March 24, 2024, provision for credit losses was $11 thousand compared to provision for credit losses of $28 thousand for the same period of the prior fiscal year.

Provision for credit losses for the nine month period ended

March 24, 2024, increased by $9 thousand to $46 thousand compared to the same period of the prior fiscal year.

Interest Expense

Interest expense was zero for the three and nine months ended March 24, 2024, compared to the same periods of the prior fiscal year.

Amortization and Depreciation Expense

Amortization and depreciation expense increased slightly for the three and nine months ended March 24, 2024, compared to the same periods of the prior year.

In both cases, 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):

Three Months Ended

Nine Months Ended

Federal tax expense

State tax expense

Total income tax expense

For the three and nine months ended March 24, 2024, the Company recorded an income tax expense of $200 thousand and $319 thousand, respectively.

For the three and

nine months ended March 26, 2023, the Company recorded an income tax expense of $115 thousand and $347 thousand, respectively.

The increase for the three months ended as of March 24, 2024 was primarily due to a increase in federal

taxes, driven by higher taxable income.

The decrease for the nine months ended as of March 24, 2024 was primarily due to a decrease in state taxes and a discrete item recorded in the second quarter of fiscal

2024 related to the restricted stock issuances.

For the three and nine months ended March 24, 2024, the Company recorded a tax benefit related to RSUs issued of zero and $149 thousand, respectively.

For the three and nine

months ended March 26, 2023, the Company recorded a tax benefit related to RSUs issued of zero and zero, 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 nine month period ended March 24, 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,

stock-based compensation, and changes in working capital.

Cash provided by operating activities was $1.3 million for the nine month period ended March 24, 2024 compared to cash provided by operating

activities of $1.2 million for the nine month period ended March 26, 2023.

The primary driver of increased operating cash flow during the nine month period ended March 24, 2024 was increased net income due to lower employee related expenses.

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 nine month period ended March 24, 2024 was $0.05 million compared to cash used in investing activities of $0.1 million for the nine months ended March 26, 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 the nine month period ended March 24, 2024 compared to net cash used in financing activities of $5.0 million for the nine month period ended March 26, 2023.

Net cash used by financing activities for the nine months ended March 24,

2024 was primarily attributable to taxes paid on vested RSUs.

Net cash used by financing activities for the nine months ended March 26, 2023 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 March 24, 2024 and March 26, 2023, 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