RAVE RESTAURANT GROUP, INC. 10-Q

Item 1. Financial Statements RAVE RESTAURANT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands , except per share amounts) (Unaudited) Three Months Ended September 29 , 2024 September 24 , 2023 REVENUES $ 3,050 $ 3,087 COSTS AND EXPENSES General and administrative expenses 1,416 1,319 Franchise expenses 995 1,172 Provision (recovery) for credit losses ( 17 ) 25 Interest income ( 82 ) ( 2 ) Depreciation and amortization expense 43 55 Total costs and expenses 2,355 2,569 INCOME BEFORE TAXES 695 518 Income tax expense 169 132 NET INCOME $ 526 $ 386 INCOME PER SHARE OF COMMON STOCK Basic $ 0.04 $ 0.03 Diluted $ 0.04 $ 0.03 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 14,587 14,154 Diluted 14,799 14,762 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 3 Index RAVE RESTAURANT GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands , except share amounts) (Unaudited) September 29 , 2024 June 30 , 2024 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,383 $ 2,886 Short-term investments 7,050 4,945 Accounts receivable, less allowance for credit losses of $ 40 and $ 57 , respectively 1,365 1,411 Notes receivable, current 67 68 Assets held for sale 27 33 Deferred contract charges, current 24 26 Prepaid expenses and other current assets 340 167 Total current assets 10,256 9,536 LONG-TERM ASSETS Property and equipment, net 159 182 Operating lease right-of-use assets, net 720 817 Intangible assets definite-lived, net 232 252 Notes receivable, net of current portion 70 79 Deferred tax asset, net 4,613 4,756 Deferred contract charges, net of current portion 235 197 Total assets $ 16,285 $ 15,819 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable - trade $ 443 $ 359 Accrued expenses 974 915 Operating lease liabilities, current 383 402 Deferred revenues, current 198 343 Total current liabilities 1,998 2,019 LONG-TERM LIABILITIES Operating lease liabilities, net of current portion 465 555 Deferred revenues, net of current portion 521 543 Total liabilities 2,984 3,117 COMMITMENTS AND CONTINGENCIES (SEE NOTE C) SHAREHOLDERS’ EQUITY Common stock, $ 0.01 par value; authorized 26,000,000 shares; issued 25,522,171 and 25,522,171 shares, respectively; outstanding 14,586,566 and 14,586,566 shares, respectively 255 255 Additional paid-in capital 37,636 37,563 Retained earnings 5,438 4,912 Treasury stock, at cost Shares in treasury: 10,935,605 and 10,935,605 respectively ( 30,028 ) ( 30,028 ) Total shareholders’ equity 13,301 12,702 Total liabilities and shareholders’ equity $ 16,285 $ 15,819 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 Index RAVE RESTAURANT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands ) (Unaudited) Common Stock Additional Paid-in Retained Treasury Stock Shares Amount Capital Earnings Shares Amount Total Balance, June 25, 2023 25,090 $ 251 $ 37,729 $ 2,439 ( 10,936 ) $ ( 30,028 ) $ 10,391 Stock-based compensation expense — — 79 — — — 79 Net income — — — 386 — — 386 Balance, September 24, 2023 25,090 $ 251 $ 37,808 $ 2,825 ( 10,936 ) $ ( 30,028 ) $ 10,856 Common Stock Additional Paid-in Retained Treasury Stock Shares Amount Capital Earnings Shares Amount Total Balance, June 30, 2024 25,522 $ 255 $ 37,563 $ 4,912 ( 10,936 ) $ ( 30,028 ) $ 12,702 Stock-based compensation expense — — 73 — — — 73 Net income — — — 526 — — 526 Balance, September 29, 2024 25,522 $ 255 $ 37,636 $ 5,438 ( 10,936 ) $ ( 30,028 ) $ 13,301 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 Index RAVE RESTAURANT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands ) (Unaudited) Three months ended September 29 , 2024 September 24 , 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 526 $ 386 Adjustments to reconcile net income to cash provided by operating activities: Amortization of discount on short-term investment ( 66 ) — Stock-based compensation expense 73 79 Depreciation and amortization 23 34 Amortization of operating right-of-use assets 97 112 Amortization of definite-lived intangible assets 20 21 Non-cash lease expense 9 — Provision (recovery) for credit losses ( 17 ) 25 Deferred income tax 143 108 Changes in operating assets and liabilities: Accounts receivable 63 48 Notes receivable — ( 48 ) Deferred contract charges ( 36 ) 20 Prepaid expenses and other current assets ( 173 ) ( 184 ) Accounts payable - trade 84 81 Accrued expenses 59 281 Operating lease liabilities ( 118 ) ( 127 ) Deferred revenues ( 167 ) ( 208 ) Cash provided by operating activities 520 628 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments ( 5,039 ) — Maturities of short-term investments 3,000 — Payments received on notes receivable 10 15 Proceeds from sale of assets 6 — Purchase of definite-lived intangible assets — ( 5 ) Purchase of property and equipment — ( 22 ) Cash used in investing activities ( 2,023 ) ( 12 ) Net (decrease)/increase in cash and cash equivalents ( 1,503 ) 616 Cash and cash equivalents, beginning of period 2,886 5,328 Cash and cash equivalents, end of period $ 1,383 $ 5,944 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION CASH PAID FOR: Income taxes (net of refunds) $ 50 $ 5 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 6 Index RAVE RESTAURANT GROUP, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 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. 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 30, 2024. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments are of a normal recurring nature. Results of operations for the fiscal periods presented are not necessarily indicative of fiscal year-end results. Note A - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Rave Restaurant Group, Inc. and its subsidiaries, all of which are wholly owned. All appropriate inter-company balances and transactions have been eliminated. Cash and Cash Equivalents 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: Level 1: Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities at the measurement date. Level 2: 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. Level 3: 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. 7 Index The following table summarizes the Company’s financial assets and financial liabilities measured at fair value at September 29, 2024: Fair Value Measurements Level 1 Level 2 Level 3 Total U.S. Treasury bills $ 7,050,421 $ — $ — $ 7,050,421 $ 7,050,421 $ — $ — $ 7,050,421 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. The 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 $ 57 $ 58 Provision (recovery) for credit losses ( 17 ) 25 Amounts written off — ( 72 ) Ending balance $ 40 $ 11 Fiscal Quarters The three month periods ended September 29, 2024 and September 24, 2023 each contained 13 weeks. Use of Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect its reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and other various assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed periodically. Actual results could differ materially from estimates. 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. 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. 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 items. 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 Revenue is measured based on consideration specified in contracts with customers and excludes incentives and amounts collected on behalf of third parties, primarily sales tax. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. 8 Index The following describes principal activities, separated by major product or service, from which the Company generates its revenues: Franchise Revenues 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 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 years . Fees received for renewal periods are amortized over the life of the renewal period. 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 of the fund. Contributions are based on a percentage of net retail sales. We have determined that we are the principal in these arrangements, and advertising fund contributions and expenditures are, therefore, reported on a gross basis in the Condensed Consolidated Statements of Income. In general, we expect such advertising fund contributions and expenditures to be largely offsetting and, therefore, do not expect a significant impact on our reported income before income taxes. Our obligation related to these funds is to develop and conduct advertising activities. Pizza Inn and Pie Five marketing fund contributions are billed and collected weekly or monthly. Supplier convention funds are deferred until the obligations of the agreement are met and the event takes place. Rental Income The Company subleases some of its restaurant space to a third-party. The Company’s sublease has terms that end in 2025. The sublease 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. Total revenues consist of the following (in thousands): Three Months Ended September 29, 2024 September 24, 2023 Franchise royalties $ 1,121 $ 1,225 Supplier and distributor incentive revenues 1,192 1,100 Franchise license fees 28 101 Area development exclusivity fees and foreign master license fees 3 4 Advertising fund contributions 464 422 Supplier convention funds 217 187 Rental income 23 46 Other 2 2 $ 3,050 $ 3,087 Stock-Based Compensation The Company accounts for stock options using the fair value recognition provisions of the authoritative guidance on stock-based payments. The Company uses the Black-Scholes formula to estimate the value of stock-based compensation for options granted to employees and directors and expects to continue to use this acceptable option valuation model in the future. The authoritative 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. 9 Index 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. The Company does not currently have any finance leases. The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right-of-use asset and a corresponding lease liability. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Short-term leases that have an initial term of one year or less are not capitalized. The Company 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. Nature of Leases The Company leases certain office space, restaurant space, and information technology equipment under non-cancelable leases to support its operations. A more detailed description of significant lease types is included below. Office Agreements The Company rents office space from third parties for its corporate location. Office agreements are typically structured with non-cancelable terms of one to 10 years. The Company has concluded that its office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreement subsequent to the primary term. Restaurant Space Agreements The Company subleases some of its restaurant space to a third-party. The Company’s sublease has terms that end in 2025. The sublease 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 The Company rents information technology equipment, primarily printers and copiers, from a third-party for its corporate office location. Information technology equipment agreements are typically structured with non-cancelable terms of one to five years . The Company has concluded that its information technology equipment commitments are operating leases. Discount Rate Leases typically do not provide an implicit interest rate. Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information available at the lease commencement date. The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The Company uses the implicit rate in the limited circumstances in which that rate is readily determinable. Lease Guarantees The Company has guaranteed the financial responsibilities of certain franchised store leases. These guaranteed leases are not considered operating leases because the Company does not have the right to control the underlying asset. If the franchisee abandons the lease and fails to meet the lease’s financial obligations, the lessor may assign the lease to the Company for the remainder of the term. If the Company does not expect to assign the abandoned lease to a new franchisee within 12 months, the lease will be considered an operating lease and a right-of-use asset, and lease liability will be recognized. 10 Index Practical Expedients and Accounting Policy Elections Certain lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, the Company has utilized the practical expedient that exempts it from separating lease components from non-lease components. Accordingly, the Company accounts for the lease and non-lease components in an arrangement as a single lease component. In addition, for all existing asset classes, the Company has made an accounting policy election not to apply the lease recognition requirements to short-term leases (that is, a lease that, at commencement, 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 Three Months Ended September 29, 2024 September 24 , 2023 Operating lease cost $ 104 $ 123 Sublease income ( 23 ) ( 47 ) Total lease expense, net of sublease income $ 81 $ 76 Weighted average remaining lease term and weighted average discount rate for operating leases are as follows: September 29, 2024 September 24 , 2023 Weighted average remaining lease term 1.6 Years 1.8 Years Weighted average discount rate 4.0 % 4.0 % Operating lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands): Operating Leases 2025 $ 314 2026 382 2027 191 Total operating lease payments $ 887 Less: imputed interest ( 39 ) Total operating lease liability $ 848 Note C - Commitments and Contingencies The Company is subject to various claims and contingencies related to employment agreements, franchise disputes, lawsuits, taxes, food product purchase contracts and other matters arising out of the normal course of business. Management believes that any such claims and actions currently pending are either covered by insurance or would not have a material adverse effect on the Company’s results of operations or financial condition if decided in a manner that is unfavorable to the Company. Note D - Stock-Based Compensation Stock Options: For the three 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: Three months ended September 29, 2024 September 24, 2023 Shares Shares Outstanding at beginning of year 114,286 151,750 Granted — — Exercised — — Forfeited/Canceled/Expired — ( 8,664 ) Outstanding at end of period 114,286 143,086 Exercisable at end of period 114,286 143,086 Restricted Stock Units: 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 RSUs. 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 Shares Shares Unvested at beginning of year 269,063 885,687 Performance adjustment 30,771 ( 25,223 ) Granted — — Issued — — Forfeited — — Unvested at September 29, 2024 299,834 860,464 11 Index 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): Three Months Ended September 29, 2024 September 24, 2023 Net income available to common shareholders $ 526 $ 386 BASIC: Weighted average common shares 14,587 14,154 Net income per common share $ 0.04 $ 0.03 DILUTED: Weighted average common shares 14,587 14,154 Dilutive stock options and restricted stock units 212 608 Weighted average common shares outstanding 14,799 14,762 Net income per common share $ 0.04 $ 0.03 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 Total income tax expense consists of the following (in thousands): Three months ended September 29, 2024 September 24, 2023 Federal tax expense $ 143 $ 108 State tax expense 26 24 Total income tax expense $ 169 $ 132 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. Note G - Segment Reporting The Company has three 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 . 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 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. 12 Index 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 September 29, 2024 September 24, 2023 Net sales and operating revenues: Pizza Inn Franchising $ 2,720 $ 2,604 Pie Five Franchising 307 436 Corporate administration and other 23 47 Consolidated revenues $ 3,050 $ 3,087 Depreciation and amortization: Corporate administration and other $ 43 $ 55 Depreciation and amortization $ 43 $ 55 Income before taxes: Pizza Inn Franchising $ 1,831 $ 1,661 Pie Five Franchising 201 209 Combined 2,032 1,870 Corporate administration and other ( 1,337 ) ( 1,352 ) Income before taxes $ 695 $ 518 Geographic information (revenues): United States $ 2,987 $ 3,034 Foreign countries 63 53 Consolidated revenues $ 3,050 $ 3,087 13 Index