RAVE RESTAURANT GROUP INC

Previous wording

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 30, 2024 and may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 30, 2024. 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.

Current wording

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 30, 2024, together with our Quarterly Report on Form 10-Q for the period ended September 29, 2024, 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 30, 2024, as well as our Quarterly Report on Form 10-Q for the period ended September 29, 2024. 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.

Previous wording

Adjusted EBITDA for the fiscal quarter ended September 29, 2024 increased $0.1 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):

Current wording

Adjusted EBITDA for the fiscal quarter ended December 29, 2024 increased $0.3 million compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA increased $0.4 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):

Previous wording

Pizza Inn total domestic retail sales decreased by $0.7 million, or 2.5%, for the three months ended September 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 75 to 78. Comparable store retail sales decreased by $0.5 million, or 2.1%, for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended September 29, 2024, the decrease in domestic retail sales were primarily the result of the decrease in comparable domestic store retail sales, offset by an increase in Buffet Units.

Current wording

Pizza Inn total domestic retail sales increased by $0.3 million, or 1.2%, for the three months ended December 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 75 to 78. Comparable store retail sales increased by $0.2 million, or 0.8%, for the three month period ended December 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended December 29, 2024, the increase in domestic retail sales were primarily the result of the increase in Buffet Units, supplemented by an increase in comparable domestic store retail sales.

Previous wording

The following chart summarizes Pizza Inn restaurant activity for the three months ended September 29, 2024:

Current wording

The following chart summarizes Pizza Inn restaurant activity for the three and six months ended December 29, 2024:

Previous wording

There was a net decrease of three units in the total domestic Pizza Inn unit count during the three months ended September 29, 2024. There were zero transfers in the total domestic Pizza Inn unit count during the three months ended September 29, 2024. For the three months ended September 29, 2024, the number of international Pizza Inn units increased by two units. There were zero transfers in the total international Pizza Inn unit count during the three months ended September 29, 2024. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Current wording

There was a net decrease of zero and three units in the total domestic Pizza Inn unit count during the three and six months ended December 29, 2024, respectively. There were three unit transfers between franchisees in the total domestic Pizza Inn unit count during the three and six months ended December 29, 2024. For the three and six months ended December 29, 2024, the number of international Pizza Inn units increased by one and three units, respectively. There were zero transfers in the total international Pizza Inn unit count during the three and six months ended December 29, 2024. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Previous wording

Pie Five total domestic retail sales decreased by $1.8 million, or 37.5%, for the three months ended September 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 27 to 20. Comparable store retail sales decreased by $0.3 million, or 8.7%, for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended September 29, 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.

Current wording

Pie Five total domestic retail sales decreased by $1.6 million, or 37.0%, for the three months ended December 29, 2024 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 25 to 20. Comparable store retail sales decreased by $0.3 million, or 11.4%, for the three month period ended December 29, 2024 as compared to the same period of the prior fiscal year. For the three months ended December 29, 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.

Previous wording

The following chart summarizes Pie Five restaurant activity for the three months ended September 29, 2024:

Current wording

The following chart summarizes Pie Five restaurant activity for the three and six months ended December 29, 2024:

Previous wording

The Pie Five units remained stable during the three months ended September 29, 2024. We believe that Pie Five units will decrease modestly in future periods.

Current wording

The Pie Five units remained stable during the three and six months ended December 29, 2024. There were zero transfers in the total domestic Pie Five unit count during the three and six months ended December 29, 2024. We believe that Pie Five units will decrease modestly in future periods.

Previous wording

The Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the three months ended September 29, 2024 and September 24, 2023 (in thousands):

Current wording

In addition to Corporate overhead support, the Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the three and six months ended December 29, 2024 and December 24, 2023 (in thousands):

Previous wording

Revenues are derived from franchise royalties, supplier and distributor incentives, franchise license fees, area development exclusivity fees and foreign master license fees, advertising funds, supplier convention funds, sublease rental income, and other income. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors.

Current wording

Revenues are derived from franchise royalties, supplier and distributor incentive revenues, franchise license fees, area development exclusivity fees and foreign master license fees, advertising fund contributions, supplier convention funds, rental income, and other income. The volume of supplier and distributor incentive revenues is dependent on the level of total 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.

Previous wording

Total revenues for the three month period ended September 29, 2024 and for the same period in the prior fiscal year were $3.1 million and $3.1 million, respectively.

Current wording

Total revenues for the three month period ended December 29, 2024 and for the same period in the prior fiscal year were $2.9 million and $2.7 million, respectively.

Previous wording

Pizza Inn franchise revenues increased by $0.1 million to $2.7 million for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The 4.5% increase was driven by increases in supplier and distributor incentives.

Current wording

Pizza Inn franchise revenues increased by $0.3 million to $2.5 million for the three month period ended December 29, 2024 as compared to the same period in the prior fiscal year. The 11.9% increase was driven by increases in supplier and distributor incentives. Pizza Inn franchise revenues increased by $0.4 million to $5.3 million for the six month period ended December 29, 2024 as compared to the same period in the prior fiscal year. The 7.9% increase was driven by increases in supplier and distributor incentives.

Previous wording

Pie Five franchise revenues decreased by $0.1 million to $0.3 million for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The 29.7% decrease was driven by decreases in domestic royalties.

Current wording

Pie Five franchise revenues decreased by $0.1 million to $0.3 million for the three month period ended December 29, 2024 as compared to the same period in the prior fiscal year. The 30.2% decrease was driven by decreases in domestic royalties. Pie Five franchise revenues decreased by $0.3 million to $0.6 million for the six month period ended December 29, 2024 as compared to the same period in the prior fiscal year. The 29.9% decrease was driven by decreases in domestic royalties.

Previous wording

Total general and administrative expenses increased by $0.1 million to $1.4 million for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. The 7.4% increase was driven by increases in legal fees, primarily due to decreases in legal settlement recoveries.

Current wording

Total general and administrative expenses remained relatively stable at $1.3 million for the three month period ended December 29, 2024 as compared to the same period of the prior fiscal year. The 2.0% decrease was driven by decreases in legal fees, offset by increases in salaries. Total general and administrative expenses increased by $0.1 million to $2.7 million for the six month period ended December 29, 2024 as compared to the same period of the prior fiscal year. The 2.6% increase was driven by increases in salaries.

Previous wording

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 $1.0 million for the three month period ended September 29, 2024 as compared to the same period of the prior fiscal year. The 15.1% decrease was driven by decreases in advertising fees.

Current wording

Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise expenses remained relatively stable at $0.8 million for the three month period ended December 29, 2024 as compared to the same period of the prior fiscal year. The 1.8% decrease was driven by decreases in salaries, offset by increases in advertising fees. Total franchise expenses decreased by $0.2 million to $1.8 million for the six month period ended December 29, 2024 as compared to the same period of the prior fiscal year. The 9.5% decrease was driven by decreases in salaries and advertising fees.

Previous wording

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.

Current wording

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high-risk accounts receivable. For the three month period ended December 29, 2024, provision for credit losses was $9 thousand compared to $10 thousand for the same period in the prior fiscal year. During the three month period ended December 29, 2024, the Company recorded a loss in provision for credit losses due to the write off of receivables. For the six month period ended December 29, 2024, recoveries for credit losses were $8 thousand compared to provision for credit losses of $35 thousand for the same period in the prior fiscal year. During the six month period ended December 29, 2024, the Company recorded a loss in provision for credit losses due to the write off of receivables, offset by a gain in provision for credit losses due to the recoveries of receivables that had been previously reserved.

Previous wording

Interest expense was zero for the three months ended September 29, 2024 compared to zero for the same fiscal period of the prior year. Interest income increased by $80 thousand to $82 thousand for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The increase was primarily driven by interest received on U.S. Treasury bills.

Current wording

Interest income increased by $41 thousand to $87 thousand for the three month period ended December 29, 2024 as compared to the same period in the prior fiscal year. The increase was primarily driven by interest received on U.S. Treasury bills. Interest income increased by $121 thousand to $169 thousand for the six month period ended December 29, 2024 as compared to the same period in the prior fiscal year. The increase was primarily driven by interest received on U.S. Treasury bills.

Previous wording

Amortization and depreciation expense decreased by $12 thousand to $43 thousand for the three month period ended September 29, 2024 as compared to the same period in the prior fiscal year. The decrease was primarily the result of lower depreciation of equipment.

Current wording

Amortization and depreciation expense decreased by $4 thousand to $53 thousand for the three month period ended December 29, 2024 as compared to the same period in the prior year. The decrease was primarily the result of lower depreciation of equipment. Amortization and depreciation expense decreased by $16 thousand to $96 thousand for the six month period ended December 29, 2024 as compared to the same period in the prior year. The decrease was primarily the result of lower depreciation of equipment.

Previous wording

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.

Current wording

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

Previous wording

Basic net income per share increased $0.01 per share to $0.04 per share for the three months ended September 29, 2024, compared to the comparable period in the prior fiscal year. The Company had net income of $0.5 million for the three months ended September 29, 2024 compared to net income of $0.4 million in the comparable period in the prior fiscal year, on revenues of $3.1 million for the three months ended September 29, 2024 compared to $3.1 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.

Current wording

Basic net income per share increased $0.01 per share to $0.08 per share for the six months ended December 29, 2024, compared to the comparable period in the prior fiscal year. The Company had net income of $1.1 million for the six months ended December 29, 2024 compared to net income of $0.9 million in the comparable period in the prior fiscal year, on revenues of $5.9 million for the six months ended December 29, 2024 compared to $5.8 million in the comparable period in the prior fiscal year.

Previous wording

During the three month period ended September 29, 2024, the Company's primary source of liquidity was proceeds from operating activities.

Current wording

During the six month period ended December 29, 2024, the Company's primary source of liquidity was proceeds from operating activities.

Previous wording

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 $0.5 million for the three month period ended September 29, 2024 compared to cash provided by operating activities of $0.6 million for the three month period ended September 24, 2023. The primary driver of decreased operating cash flow during the three month period ended September 29, 2024 was decreased accrued expenses related to payroll and related costs.

Current wording

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 $1.2 million for the six month period ended December 29, 2024 compared to cash provided by operating activities of $0.3 million for the six month period ended December 24, 2023. The primary driver of increased operating cash flow during the six month period ended December 29, 2024 was increased collections of accounts receivable related to the payment of franchise receivables.

Previous wording

Cash flows from investing activities reflect purchases and maturities of short-term investments as well as net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities during the three month period ended September 29, 2024 was $2.0 million compared to cash used in investing activities of $12 thousand for the three months ended September 24, 2023. Net cash used by investing activities during the three month period ended September 29, 2024 was primarily attributable to increased purchases of U.S. treasury bills.

Current wording

Cash flows from investing activities reflect purchases and maturities of short-term investments as well as net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities during the six month period ended December 29, 2024 was $1.0 million compared to cash used in investing activities of $16 thousand for the six months ended December 24, 2023. Net cash used by investing activities during the six month period ended December 29, 2024 was primarily attributable to increased purchases of U.S. Treasury bills.

Previous wording

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 zero for the three month periods ended September 29, 2024 and September 24, 2023.

Current wording

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 $0.2 million for the six month period ended December 29, 2024 compared to net cash used in financing activities of $0.3 million for the six month period ended December 24, 2023. Net cash used by financing activities for the six months ended December 29, 2024 was primarily attributable to taxes paid on vested RSUs. Net cash used by financing activities for the six months ended December 24, 2023 was primarily attributable to taxes paid on vested RSUs.

Previous wording

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. In the event of a closed franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.

Current wording

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. In event of a closed franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.