RAVE RESTAURANT GROUP, INC. - Quarter Report: 2015 December (Form 10-Q)

rave10q122715.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 27, 2015

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-12919

RAVE RESTAURANT GROUP, INC.

(Exact name of registrant as specified in its charter)

Missouri	45-3189287
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

3551 Plano Parkway

The Colony, Texas 75056

(Address of principal executive offices)

(469) 384-5000

(Registrant's telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of February 10, 2016, 10,313,635 shares of the issuer’s common stock were outstanding.

RAVE RESTAURANT GROUP, INC.

Index

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements	Page

	Condensed Consolidated Statements of Operations for the three months and six months ended December 27, 2015 and December 28, 2014 (unaudited)	4

	Condensed Consolidated Balance Sheets at December 27, 2015 (unaudited) and June 28, 2015	5

	Condensed Consolidated Statements of Cash Flows for the six months ended December 27, 2015 and December 28, 2014 (unaudited)	6

	Supplemental Disclosure of Cash Flow Information for the six months ended December 27, 2015 and December 28, 2014 (unaudited)	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19

Item 4.	Controls and Procedures	19

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	19

Item 1A.	Risk Factors	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.	Defaults Upon Senior Securities	20

Item 4.	Mine Safety Disclosures	20

Item 5.	Other Information	20

Item 6.	Exhibits	21

Signatures		22

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)



	Three Months Ended						Six Months Ended
	December 27,			December 28,			December 27,			December 28,
	2015			2014			2015			2014


REVENUES:	$	15,311		$	11,127		$	29,847		$	22,434

COSTS AND EXPENSES:
Cost of sales		13,139			9,534			25,489			19,148
General and administrative expenses		1,694			1,215			3,263			2,324
Franchise expenses		949			750			1,808			1,465
Pre-opening expenses		304			136			736			172
Impairment of long-lived assets		1,010			-			1,010			-
Bad debt		128			12			231			92
Interest expense		2			3			3			109
Total costs and expenses		17,226			11,650			32,540			23,310

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES		(1,915	)		(523	)		(2,693	)		(876	)
Income tax expense (benefit)		2,892			(167	)		2,634			(282	)
LOSS FROM CONTINUING OPERATIONS		(4,807	)		(356	)		(5,327	)		(594	)

Loss from discontinued operations, net of taxes		(23	)		(43	)		(60	)		(70	)
NET LOSS	$	(4,830	)	$	(399	)	$	(5,387	)	$	(664	)

LOSS PER SHARE OF COMMON STOCK - BASIC:
Loss from continuing operations	$	(0.47	)	$	(0.04	)	$	(0.52	)	$	(0.06	)
Loss from discontinued operations		-			-			-			(0.01	)
Net loss	$	(0.47	)	$	(0.04	)	$	(0.52	)	$	(0.07	)

LOSS PER SHARE OF COMMON STOCK - DILUTED:

Loss from continuing operations	$	(0.45	)	$	(0.04	)	$	(0.50	)	$	(0.06	)
Loss from discontinued operations		-			-			-			(0.01	)
Net loss	$	(0.45	)	$	(0.04	)	$	(0.50	)	$	(0.07	)

Weighted average common shares outstanding - basic		10,314			9,393			10,310			9,392

Weighted average common and
potential dilutive common shares outstanding		10,770			9,895			10,859			9,905

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

	December 27,			June 28,
ASSETS	2015 (unaudited)			2015

CURRENT ASSETS
Cash and cash equivalents	$	1,747			5,958
Accounts receivable, less allowance for bad debts
accounts of $379 and $193, respectively		3,075			3,437
Notes receivable		170			24
Inventories		234			180
Income tax receivable		212			492
Deferred income tax assets		-			729
Prepaid expenses and other		717			872
Total current assets		6,155			11,692

LONG-TERM ASSETS
Property, plant and equipment, net		14,349			10,020
Long-term notes receivable		170			119
Long-term deferred tax asset		-			1,864
Deposits and other		293			276
Total assets	$	20,967		$	23,971

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	4,132			2,875
Accrued expenses		930			1,267
Deferred rent		163			155
Deferred revenues		266			374
Total current liabilities		5,491			4,671

LONG-TERM LIABILITIES
Deferred rent, net of current portion		1,311			893
Deferred revenues, net of current portion		1,448			1,166
Deferred gain on sale of property		-			9
Other long-term liabilities		31			22
Total liabilities		8,281			6,761

COMMITMENTS AND CONTINGENCIES (See Note 2)

SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 26,000,000
shares; issued 17,433,035 and 17,374,735 shares, respectively;
outstanding 10,313,635 and 10,255,335 shares, respectively		174			174
Additional paid-in capital		25,563			24,700
Retained earnings		11,585			16,972
Treasury stock at cost		(24,636	)		(24,636	)
Shares in treasury: 7,119,400
Total shareholders' equity		12,686			17,210
	$	20,967		$	23,971

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Six Months Ended
	December 27,			December 28,
	2015			2014

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(5,387	)	$	(664	)
Adjustments to reconcile net loss to
cash provided by (used in) operating activities:
Depreciation and amortization		1,118			741
Impairment of long-lived assets		1,010			-
Stock compensation expense		90			53
Deferred income taxes		2,593			(340	)
Loss on sale of assets		2			-
Provision for bad debt		231			92
Changes in operating assets and liabilities:
Notes and accounts receivable		214			438
Inventories		(54	)		259
Accounts payable - trade		1,257			(790	)
Accrued expenses		98			58
Deferred revenue		165			501
Prepaid expenses and other		136			(376	)
Cash provided by (used in) operating activities		1,473			(28	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		14			-
Capital expenditures		(6,471	)		(1,564	)
Cash used in investing activities		(6,457	)		(1,564	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock		773			1,752
Repayments of bank debt		-			(767	)
Cash provided by financing activities		773			985

Net decrease in cash and cash equivalents		(4,211	)		(607	)
Cash and cash equivalents, beginning of period		5,958			2,796
Cash and cash equivalents, end of period	$	1,747		$	2,189



SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


CASH PAYMENTS FOR:

Interest	$	1		$	12

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

RAVE RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements of Rave Restaurant Group, Inc. (the "Company") 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 28, 2015.

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.

(1)	Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All appropriate intercompany 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.

Fiscal Quarters

The three and six month periods ended December 27, 2015 and December 28, 2014, each contained 13 weeks and 26 weeks, respectively.

Revenue Recognition

The Company recognizes revenue when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. The Company's Norco division sells food and supplies to franchisees on trade accounts under terms common in the industry. Food and supply sales revenues, including shipping and handling costs, are recognized upon delivery of the product. Revenue from restaurant sales is recognized when food and beverage products are sold. The Company reports revenue net of sales taxes collected from customers and remitted to governmental taxing authorities.

Franchise revenue consists of income from license fees, royalties, and area development and foreign master license fees. License fees are recognized as income when there has been substantial performance under the agreement by the Company. Domestic license fees are generally recognized at the time the restaurant is opened. Foreign master license fees are generally recognized upon execution of the agreement as all material services relating to the sale have been substantially performed by the Company and the fee has been collected. Royalties are recognized as income when earned.

Stock-Based Compensation

The Company accounts for stock options using the fair value recognition provisions of the authoritative guidance on share-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.

Use of Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 and actual results could differ materially from estimates.

Reclassification

Certain items have been reclassified in the prior year financial statements to conform to current year presentation.

(2)	Commitments and Contingencies

On April 22, 2009, the Company’s board of directors amended the stock purchase plan first adopted on May 23, 2007, and previously amended on June 2, 2008, to increase the number of shares of common stock the Company may repurchase to a total of 3,016,000 shares. As of December 27, 2015, up to an additional 848,425 shares could be purchased under the plan.

The Company is subject to various claims and legal actions in the ordinary course of its business. The Company believes that all such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company’s annual results of operations, cash flows or financial condition if decided in a manner that is unfavorable to the Company.

(3) Stock-Based Compensation

For the three months ended December 27, 2015, and December 28, 2014, the Company recognized stock-based compensation expense of $45,000 and $30,000, respectively. For the six month period ended December 27, 2015, and December 28, 2014, the Company recognized stock-based compensation expense of $90,000 and $53,000, respectively. As of December 27, 2015, unamortized stock-based compensation expense was $0.3 million.

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

	Six Months Ended
	December 27, 2015		December 28, 2014

Outstanding at beginning of year		871,798		921,198

Granted		42,786		108,800
Exercised		-		(77,000	)
Forfeited/Canceled/Expired		-		-

Outstanding at end of period		914,584		952,998

Exercisable at end of period		551,028		478,823

(4)	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						Six Months Ended
	December 27,			December 28,			December 27,			December 28,
	2015			2014			2015			2014
Loss from continuing operations	$	(4,807	)	$	(356	)	$	(5,327	)	$	(594	)
Loss from discontinued operations		(23	)		(43	)		(60	)		(70	)
Net loss available to common stockholders	$	(4,830	)	$	(399	)	$	(5,387	)	$	(664	)

BASIC:
Weighted average common shares		10,314			9,393			10,310			9,392

Loss from continuing operations per common share	$	(0.47	)	$	(0.04	)	$	(0.52	)	$	(0.06	)
Loss from discontinued operations per common share		-			-			-			(0.01	)
Net loss per common share	$	(0.47	)	$	(0.04	)	$	(0.52	)	$	(0.07	)

DILUTED:
Weighted average common shares		10,314			9,393			10,310			9,392
Stock options		456			502			549			513
Weighted average common shares outstanding		10,770			9,895			10,859			9,905


Loss from continuing operations per common share	$	(0.45	)	$	(0.04	)	$	(0.50	)	$	(0.06	)
Loss from discontinued operations per common share		-			-			-			(0.01	)
Net loss per common share	$	(0.45	)	$	(0.04	)	$	(0.50	)	$	(0.07	)

For the three months ended December 27, 2015, options to purchase 24,286 shares of common stock at an exercise price of $13.11, 15,000 shares at $8.16 and 48,500 shares at $8.05 were excluded from the computation of diluted EPS because the options’ exercise price exceeded the average market price of the common shares for the period.

(5) Closed restaurants and discontinued operations

In April, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which modifies the definition of discontinued operations to include only disposals of an entity that represent strategic shifts that have or will have a major effect on an entity’s operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. The standard is effective prospectively for annual and interim periods beginning after December 15, 2014, with early adoption permitted. This pronouncement did not have a material impact on our condensed consolidated financial statements.

The authoritative guidance on “Accounting for Costs Associated with Exit or Disposal Activities,” requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This authoritative guidance also establishes that fair value is the objective for initial measurement of the liability.

Discontinued operations reflect losses from two Company-owned Pizza Inn locations in Texas. These losses were attributable to leasehold expense associated with a restaurant closed during fiscal 2008 and operating results for a restaurant closed in the fourth quarter of fiscal 2014.

(6) Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Accounting for Income Taxes. Under ASC 740, deferred tax assets and liabilities for the expected future tax consequences of transactions and events are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company has open tax years for the U.S. federal return from fiscal year 2012 forward and fiscal year 2011 for various state purposes.

Accounting Standards Update No. 2105-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, issued on November 20, 2015, eliminates the requirement for entities that present a classified statement of financial position to classify deferred tax assets and liabilities as current and noncurrent, and instead require that they classify all deferred tax assets and liabilities as noncurrent. The Company is making an early adoption of this accounting standard on a prospective basis.

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 the second quarter of fiscal year 2016, the Company recorded a $3.5 million valuation allowance against its net deferred tax assets. The Company assessed 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” standard. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income were also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s deferred tax assets at December 27, 2015 was appropriate.

(7) Related Party Transactions

On February 20, 2014, the Company entered into an Advisory Services Agreement (the “Agreement”) with NCM Services, Inc. (“NCMS”) pursuant to which NCMS will provide certain advisory and consulting services to the Company. NCMS is indirectly owned and controlled by Mark E. Schwarz, the Chairman of the Company. The term of the Agreement commenced December 30, 2013, and continues quarterly thereafter until terminated by either party. Pursuant to the Agreement, NCMS was paid an initial fee of $150,000 and earns quarterly fees of $50,000 and an additional fee of up to $50,000 per quarter (not to exceed an aggregate of $100,000 in additional fees). The quarterly and additional fees are waived if the Company is not in compliance with all financial covenants under its primary credit facility or to the extent that payment of those fees would result in non-compliance with such financial covenants.

(8)	Segment Reporting

Summarized in the following tables are net sales and operating revenues, operating income and geographic information (revenues) for the Company’s reportable segments for the three and six month periods ended December 27, 2015 and December 28, 2014 (in thousands). Operating income reported below excludes income tax provision and discontinued operations.

	Three Months Ended						Six Months Ended
	December 27,			December 28,			December 27,			December 28,
	2015			2014			2015			2014
Net sales and operating revenues:
Franchising and food and supply distribution	$	10,227		$	8,331		$	20,139		$	16,817
Company-owned restaurants (1)		5,084			2,796			9,708			5,617
Consolidated revenues	$	15,311		$	11,127		$	29,847		$	22,434

Depreciation and amortization:
Franchising and food and supply distribution	$	6		$	6		$	12		$	11
Company-owned restaurants (1)		575			303			1,018			624
Combined		581			309			1,030			635
Corporate administration and other		20			56			88			106
Depreciation and amortization	$	601		$	365		$	1,118		$	741

Loss from continuing operations before taxes:
Franchising and food and supply distribution (2)	$	895		$	387		$	1,528		$	808
Company-owned restaurants (1) (2)		(1,057	)		(343	)		(1,720	)		(444	)
Combined		(162	)		44			(192	)		364
Impairment of long-lived assets		(1,010	)		-			(1,010	)		-
Corporate administration and other (2)		(743	)		(567	)		(1,491	)		(1,240	)
Loss from continuing operations before taxes	$	(1,915	)	$	(523	)	$	(2,693	)	$	(876	)

Geographic information (revenues):
United States	$	15,122		$	10,969		$	29,457		$	22,109
Foreign countries		189			158			390			325
Consolidated total	$	15,311		$	11,127		$	29,847		$	22,434

(1)	Company stores that were closed are included in discontinued
	operations in the accompanying Condensed Consolidated Statement
	of Operations.

(2)	Portions of corporate administration and other have been allocated to segments.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 28, 2015, 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 28, 2015. 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

Overview

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,”, “us” or “our”) operates and franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants domestically and internationally under the trademark “Pizza Inn” and operates domestic fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. We provide or facilitate food, equipment and supply distribution to our domestic and international system of restaurants through our Norco Restaurant Services Company (“Norco”) division and through agreements with third party distributors. The following chart presents information concerning Company-owned and franchised restaurants as of and for the three and six month periods ended December 27, 2015:

Three Months Ended December 27, 2015
(in thousands, except unit data)

	Pizza Inn				Pie Five				All Concepts
	Ending		Retail		Ending		Retail		Ending		Retail
	Units		Sales		Units		Sales		Units		Sales

Company-Owned		1	$	208		33	$	4,876		34	$	5,084
Domestic Franchised		166		21,328		49		8,091		215		29,419
Total Domestic Units		167	$	21,536		82	$	12,967		249	$	34,503

International Franchised		71				-				71

Six Months Ended December 27, 2015

(in thousands, except unit data)

	Pizza Inn				Pie Five				All Concepts
	Ending		Retail		Ending		Retail		Ending		Retail
	Units		Sales		Units		Sales		Units		Sales

Company-Owned		1	$	439		33	$	9,269		34	$	9,708
Domestic Franchised		166		43,556		49		14,803		215		58,359
Total Domestic Units		167	$	43,995		82	$	24,072		249	$	68,067

International Franchised		71				-				71

Domestic restaurants are located in 26 states predominantly situated in the southern half of the United States. International restaurants are located in seven foreign countries.

Basic and diluted income per common share declined $0.43 and $0.41 per share, respectively, to a loss of $0.47 and $0.45 per share, respectively for the three month period ended December 27, 2015, compared to a loss of $0.04 per share in the comparable period in the prior fiscal year. The Company had a net loss of $4.8 million for the three month period ended December 27, 2015, and net loss of $0.4 million in the comparable period in the prior fiscal year, on revenues of $15.3 million for the three month period ended December 27, 2015 compared to $11.1 million in the comparable period in the prior fiscal year. Basic and diluted income per common share declined $0.45 and $0.43 per share, respectively, to a loss of $0.52 and $0.50 per share, respectively, for the six month period ended December 27, 2015, compared to a loss of $0.07 per share in the comparable period in the prior fiscal year. The Company had a net loss of $5.4 million for the six month period ended December 27, 2015, and net loss of $0.7 million in the comparable period in the prior fiscal year, on revenues of $29.8 million for the six month period ended December 27, 2015 compared to $22.4 million in the comparable period in the prior fiscal year. The increase in net loss from prior year was primarily due to impairment expense of $1.0 million and a full valuation allowance of $3.5 million against all of its net deferred tax assets, as well as increased pre-opening expenses and higher general and administrative and franchise costs related to additional personnel and other resources to support the growth of the Pie Five franchising and opening of Company-owned restaurants.

Adjusted EBITDA for the fiscal quarter ended December 27, 2015, increased to $61 thousand compared to $5 thousand for the same period of the prior fiscal year. Year-to-date adjusted EBITDA increased to $0.3 million compared to $0.2 million the prior fiscal year. The following table sets forth a reconciliation of net income to Adjusted EBITDA for the periods shown (in thousands):

	Three Months Ended						Six Months Ended
	December 27,			December 28,			December 27,			December 28,
	2015			2014			2015			2014
Net loss	$	(4,830	)	$	(399	)	$	(5,387	)	$	(664	)
Interest expense		2			3			3			109
Income Taxes		2,892			(167	)		2,634			(282	)
Income Taxes--Discontinued Operations		(12	)		(19	)		(31	)		(34	)
Depreciation and amortization		601			365			1,118			741
EBITDA	$	(1,347	)	$	(217	)	$	(1,663	)	$	(130	)
Stock compensation expense		45			30			90			53
Pre-opening costs		304			136			736			172
Asset disposals, closure costs and restaurant impairment		1,059			56			1,126			113
Adjusted EBITDA	$	61		$	5		$	289		$	208

Pie Five Brand Summary

The following tables summarize certain key indicators for the Pie Five franchised and Company-owned restaurants that management believes are useful in evaluating performance.

	Three Months Ended				Six Months Ended
	December 27,		December 28,		December 27,		December 28,
	2015		2014		2015		2014
	(in thousands, except unit data)				(in thousands, except unit data)
Pie Five Retail Sales - Total Stores
Domestic - Franchised	$	8,091	$	2,724	$	14,803	$	4,520
Domestic - Company-owned		4,876		2,438		9,269		4,842
Total domestic retail sales	$	12,967	$	5,162	$	24,072	$	9,362

Pie Five Comparable Store Retail Sales - Total	$	3,078	$	3,127	$	6,288	$	6,291

Pie Five Average Units Open in Period
Domestic - Franchised		42		12		37		10
Domestic - Company-owned		32		14		29		14
Total domestic Units		74		26		66		24

Pie Five system-wide retail sales increased $7.8 million, or 151.2%, for the three month period ended December 27, 2015 when compared to the same period of the prior year. System-wide average weekly sales declined by $1,459, or 9.9%, from $14,739 in the same fiscal quarter of the prior year to $13,280 for the three months ended December 27, 2015. Compared to the same fiscal quarter of the prior year, average units open in the period increased from 26 to 74. Comparable store retail sales decreased by $49 thousand, or 1.6%, during the second quarter of fiscal 2016 compared to the same period of the prior year.

Pie Five system-wide retail sales increased $14.7 million, or 157.1%, for the six month period ended December 27, 2015 when compared to the same period of the prior year. System-wide average weekly sales declined by $1,093, or 7.3%, from $14,987 in the same fiscal quarter of the prior year to $13,894 for the six months ended December 27, 2015. Year-to-date fiscal 2016 compared to the year-to-date of the prior year, average units open in the period increased from 24 to 66. Comparable store retail sales decreased slightly by $3 thousand during the first six months fiscal 2016 compared to the same period of the prior year.

The following chart summarizes Pie Five restaurant activity for the three and six month periods ended December 27, 2015:

	Three Months Ended December 27, 2015								Six Months Ended December 27, 2015
	Beginning						Ending		Beginning						Ending
	Units		Opened		Closed		Units		Units		Opened		Closed		Units

Domestic - Franchised		38		11		-		49		30		19		-		49
Domestic - Company-owned		30		3		-		33		24		9		-		33
Total domestic Units		68		14		-		82		54		28		-		82

We believe that the addition of 14 Pie Five Units during the second quarter of fiscal 2016 reflects the continuation of an accelerated pace of growth in the opening of Pie Five Units as franchised stores begin to open pursuant to previously executed franchise development agreements and the Company continues to develop its own stores in selected metropolitan areas.

Pie Five - Company-Owned Restaurants	Three Months Ended						Six Months Ended
(in thousands, except store weeks and average data)	December 27,			December 28,			December 27,			December 28,
	2015			2014			2015			2014
Store weeks		414			183			741			352
Average weekly sales		11,725			13,322			12,418			13,759
Average number of units		32			14			29			14

Restaurant sales (excluding partial weeks)		4,854			2,427			9,202			4,827
Restaurant sales		4,876			2,438			9,269			4,843

Restaurant operating cash flow		241			330			868			742
Allocated marketing and advertising expenses		(243	)		(122	)		(463	)		(242	)
Depreciation/amortization expense		(568	)		(267	)		(998	)		(540	)
Pre-opening costs		(264	)		(137	)		(688	)		(150	)
Operations management and extraordinary expenses		(172	)		(100	)		(336	)		(163	)
Impairment of long-lived assets		(1,010	)		-			(1,010	)		-
Loss from continuing operations before taxes		(2,016	)		(296	)		(2,627	)		(353	)

Average weekly sales for Company-owned Pie Five restaurants decreased $1,597, or 12.0%, to $11,725 for the three month period ended December 27, 2015 compared to $13,322 for the same period of prior year. Company-owned Pie Five restaurant operating cash flow decreased $0.1 million, or 27.0%, during the second quarter of fiscal 2016 compared to the same period of prior year. Loss from continuing operations before taxes for Company-owned Pie Five stores increased $1.7 million for the three months ended December 27, 2015 compared to the same period of the prior year.

Average weekly sales for Company-owned Pie Five restaurants decreased $1,341, or 9.7%, to $12,418 for the six month period ended December 27, 2015 compared to $13,759 for the same period of prior year. Company-owned Pie Five restaurant operating cash flow increased $0.1 million, or 17.0%, for the first six months of fiscal 2016 compared to the same period of prior year. Loss from continuing operations before taxes for Company-owned Pie Five stores increased $2.3 million for the six months ended December 27, 2015 compared to the same period of the prior year. For the three and six months ended December 27, 2015, loss from continuing operations before taxes of Company-owned Pie Five restaurants was adversely impacted by impairment charges of $1.0 million related to the carrying value of three Pie Five restaurants. (See, “Financial Results-Impairment of Long-Lived Assets” below.)

Pizza Inn Brand Summary

The following tables summarize certain key indicators for the Pizza Inn franchised and Company-owned domestic restaurants that management believes are useful in evaluating performance.

	Three Months Ended				Six Months Ended
	December 27,		December 28,		December 27,		December 28,
	2015		2014		2015		2014
Pizza Inn Retail Sales - Total Domestic Stores	(in thousands, except unit data)				(in thousands, except unit data)
Domestic Units
Buffet - Franchised	$	19,486	$	19,775	$	39,755	$	40,580
Delco/Express - Franchised		1,842		2,050		3,801		4,213
Buffet - Company-owned		208		358		439		774
Total domestic retail sales	$	21,536	$	22,183	$	43,995	$	45,567

Pizza Inn Comparable Store Retail Sales - Total Domestic	$	20,853	$	21,221	$	42,722	$	43,346

Pizza Inn Average Units Open in Period
Domestic Units
Buffet - Franchised		96		98		97		99
Delco/Express - Franchised		69		77		70		77
Buffet - Company-owned		1		2		1		2
Total domestic Units		166		177		168		178

Total Pizza Inn domestic retail sales decreased $0.6 million, or 2.9%, for the three months ended December 27, 2015 when compared to the same period of the prior year. Pizza Inn domestic comparable store retail sales decreased 1.7%, for the three months ended December 27, 2015 when compared to the same period of the prior year.

Total Pizza Inn domestic retail sales decreased $1.6 million, or 3.4%, for the six months ended December 27, 2015 when compared to the same period of the prior year. Pizza Inn domestic comparable store retail sales decreased 1.4%, for the six months ended December 27, 2015 when compared to the same period of the prior year.

The following chart summarizes Pizza Inn restaurant activity for the three and six month periods ended December 27, 2015:

	Three Months Ended December 27, 2015								Six Months Ended December 27, 2015
	Beginning						Ending		Beginning						Ending
	Units		Opened		Closed		Units		Units		Opened		Closed		Units
Domestic Units
Buffet - Franchised		97		-		3		94		99		-		5		94
Delco/Express - Franchised		73		1		2		72		78		1		7		72
Buffet - Company-owned		1		-		-		1		2		-		1		1
Total domestic Units		171		1		5		167		179		1		13		167

International Units (all types)		71		-		-		71		71		-		-		71

Total Units		242		1		5		238		250		1		13		238

There was a net decrease of four domestic Pizza Inn units during the three months ended December 27, 2015 and a net decrease of twelve units for the six months ended December 27, 2015 (which included four stores that were temporarily closed for portions of the current and prior fiscal year). We believe this is consistent with the recent trend of modest domestic store closures. The number of international Pizza Inn units continues to remain steady.

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.

The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have the meaning 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 compensation expense, pre-opening expense, gain/loss on sale of assets, costs related to closed restaurants and impairment charges.

·	“Retail sales” represents the restaurant sales reported by our franchisees and Company-owned restaurants, which may be segmented by brand or domestic/international locations.

·	“System-wide retail sales” represents combined retail sales for franchisee and Company-owned restaurants for a specified brand.

“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.

“Restaurant operating cash flow” represents the pre-tax income earned by Company-owned restaurants before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) pre-opening expenses, (4) operations management and extraordinary expenses and (5) deferred rent adjustment (net) and impairment.

·	“Pre-opening expenses” consist primarily of certain costs incurred prior to the opening of a restaurant, including: (1) marketing and promotional expenses, (2) accrued rent, and (3) manager salaries, employee payroll and related training costs..

Financial Results

Revenues:

Revenues are derived from (1) sales of food, paper products and supplies from Norco to franchisees, (2) franchise royalties and franchise fees, and (3) Company-owned restaurant operations. Financial results are dependent in large part upon the volume, pricing and cost of the products and supplies sold to franchisees. The volume of products sold by Norco to franchisees is dependent on the level of franchisee chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, and the products sold to franchisees through Norco rather than through third-party food distributors.

Total revenues for the three month period ended December 27, 2015 and for the same period in the prior fiscal year were $15.3 million and $11.1 million, respectively. Total revenues for the six month period ended December 27, 2015 and for the same period in the prior fiscal year were $29.8 million and $22.4 million, respectively. Revenue consisted of the following:

	Three Months Ended				Six Months Ended
	December 27,		December 28,		December 27,		December 28,
	2015		2014		2015		2014
Food and supply sales	$	8,785	$	7,263	$	17,424	$	14,731
Franchise revenue		1,442		1,068		2,715		2,086
Restaurant sales		5,084		2,796		9,708		5,617
Total revenue	$	15,311	$	11,127	$	29,847	$	22,434

Food and Supply Sales

Food and supply sales by Norco include food and paper products and other distribution revenues. For the three month period ended December 27, 2015, food and supply sales increased to $8.8 million compared to $7.3 million the same period in the prior fiscal year due primarily to a $4.9 million, or 19.8%, increase in total domestic franchisee retail sales. For the six month period ended December 27, 2015, food and supply sales increased to $17.4 million compared to $14.7 million the same period in the prior fiscal year due primarily to a $9.0 million, or 18.3%, increase in total domestic franchisee retail sales driven by an increase in the number of Pie Five franchisee stores.

Franchise Revenue

Franchise revenue, which includes income from domestic and international royalties and license fees, increased by $0.4 million and $0.6 million for the three and six month periods ended December 27, 2015, respectively, when compared to the same period in the prior fiscal year. These increases were the result of higher royalties resulting from increased Pie Five franchisee retail sales and an increase in franchise fees and development fees related to Pie Five.

Restaurant Sales

Restaurant sales, which consist of revenue generated by Company-owned restaurants, increased 81.8%, or $2.3 million, to $5.1 million for the three month period ended December 27, 2015, compared to $2.8 million for the comparable period in the prior year. Restaurant sales increased 72.8%, or $4.1 million, to $9.7 million for the six month period ended December 27, 2015, compared to $5.6 million for the comparable period in the prior year. These increases were primarily due to the opening of new Company-owned Pie Five restaurants in fiscal 2015 and fiscal 2016.

Costs and Expenses:

Cost of Sales

Cost of sales, which primarily includes food and supply costs, distribution fees, and labor and general and administrative expenses directly related to restaurant sales, increased to $13.1 million for the three month period ended December 27, 2015 compared to $9.5 million in the three month period ended December 28, 2014. Cost of sales increased to $25.5 million for the six month period ended December 27, 2015 compared to $19.1 million in the comparable period in the prior year. The increases in costs were primarily the result of new Company-owned restaurants and increased food and supply sales by Norco.

General and Administrative Expenses

General and administrative expenses increased to $1.7 million for the three month period ended December 27, 2015 compared to $1.2 million for the quarter ended December 28, 2014. General and administrative expenses increased to $3.3 million for the six month period ended December 27, 2015 compared to $2.3 million for the six months ended December 28, 2014.

Franchise Expenses

Franchise expenses include selling, general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. These expenses increased to $0.9 million for the three month period ended December 27, 2015 compared to $0.8 million for the three month period ended December 28, 2014. Franchise expenses increased to $1.8 million for the six month period ended December 27, 2015 compared to $1.5 million for the six month period ended December 28, 2014.

Pre-Opening Expenses

Pre-opening expenses increased to $0.3 million for the second quarter of fiscal 2016 compared to $0.1 million for the same quarter of fiscal 2015. Pre-opening expenses increased to $0.7 million for the six month period ended December 27, 2015 compared to $0.2 million for the same six month period of fiscal 2015. These increases were due primarily to an increased number of Company-owned Pie Five stores under development.

Impairment of Long-Lived Assets

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 of the assets compared to its carrying value. If impairment is recognized, the carrying value of the impaired asset is reduced to its fair value, based on discounted estimated future cash flows. During the second quarter of fiscal year 2016, the Company tested its long-lived assets for impairment and recognized pre-tax, non-cash impairment charges of $1.0 million related to the carrying value of three Pie Five restaurants.

Bad Debt Expense

The Company monitors franchisee retail sales and receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. Bad debt expense increased to $0.1 million for the three month period ended December 27, 2015 as compared to $12 thousand in the comparable period in the prior fiscal year. Bad debt expense increased to $0.2 million for the six month period ended December 27, 2015 as compared to $0.1 million in the comparable period in the prior fiscal year.

Interest Expense

Interest expense decreased $1 thousand for the three month period ended December 27, 2015 as compared to the comparable period in the prior fiscal year. Interest expense decreased $0.1 million for the six month period ended December 27, 2015 as compared to the comparable period in the prior fiscal year. A zero debt balance in the current period resulted from the payoff of the Company’s bank credit facilities in the first quarter of fiscal 2015.

Provision for Income Tax

For the three months ended December 27, 2015, income tax expense of $2.9 million represents an income tax benefit of $0.6 million calculated at a rate consistent with the 34% statutory U.S. federal rate offset by an income tax expense of $3.5 million related to recording a valuation allowance for deferred tax assets. For the six months ended December 27, 2015, income tax expense of $2.6 million represents an income tax benefit of $0.9 million calculated at a rate consistent with the 34% statutory U.S. federal rate offset by an income tax expense of $3.5 million related to recording a valuation allowance for deferred tax assets.

Discontinued Operations

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities and proceeds from the sale of common stock.

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred tax assets, share based compensation, and changes in working capital. Cash provided by operating activities increased $1.5 million to cash provided of $1.5 million for the period ended December 27, 2015 compared to cash used of $28 thousand for the six months ended December 28, 2014.

Cash flows from investing activities reflects capital expenditures for the purchase of Company assets. The Company used cash of $6.5 million for the six month period ended December 27, 2015, primarily for new Company-owned Pie Five restaurants. This compares to cash used by investing activities of $1.6 million during the same period in the prior fiscal year attributable to Company-owned Pie Five restaurants that opened during the period.

Cash flows from financing activities generally reflect changes in the Company's borrowings and stock activity during the period. Net cash provided by financing activities was $0.8 million and $1.0 million for the six month periods ended December 27, 2015 and December 28, 2014, respectively, which reflected proceeds from the sale of stock in both periods offset by the repayment of bank debt in the first quarter of fiscal 2015.

On May 20, 2013, the Company entered into an At-the-Market Issuance Sales Agreement with MLV & Co. LLC (“MLV”) pursuant to which the Company could offer and sell shares of its common stock having an aggregate offering price of up to $3,000,000 from time to time through MLV, acting as agent (the “2013 ATM Offering”). The 2013 ATM Offering was undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which was declared effective by the SEC on May 13, 2013. On November 20, 2013, the Company and MLV amended the At-the-Market Issuance Sales Agreement and the SEC declared effective a new shelf Registration Statement on Form S-3 to increase the 2013 ATM Offering by $5,000,000. The Company ultimately sold an aggregate of 1,257,609 shares in the 2013 ATM Offering, realizing aggregate net proceeds of $8.0 million.

On October 1, 2014, the Company entered into a new At Market Issuance Sales Agreement with MLV pursuant to which the Company could initially offer and sell shares of its common stock having an aggregate offering price of up to $5,000,000 from time to time through MLV, acting as agent (the “2014 ATM Offering”). On February 13, 2015, the aggregate offering amount of the 2014 ATM Offering was increased to $10,000,000. The 2014 ATM Offering is being undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which was declared effective by the SEC on August 8, 2014. Through December 27, 2015, the Company had sold an aggregate of 825,763 shares in the 2014 ATM Offering, realizing aggregate net proceeds of $7.9 million.

Management believes the cash on hand combined with cash from operations and proceeds from the 2014 ATM Offering will be sufficient to fund operations for the next 12 months.

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 food and supply sales to franchisees and franchise royalties. The Company records a provision for doubtful receivables to allow for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from the Company’s estimates.

Prior to January 5, 2015, inventory consisted primarily of food, paper products and supplies primarily warehoused by the Company’s third-party distributors for distribution system-wide and was stated at lower of cost or market, with cost determined according to the weighted average cost method. The valuation of such inventory required us to estimate the amount of obsolete and excess inventory based on estimates of future demand for our products within specific time horizons, generally nine months or less. The possibility of overestimating demand subjected us to risk of inventory write-down which could have had a negative impact on the Company’s gross margin.

Effective in the third quarter of fiscal 2015, The Company changed its distribution arrangements to shift the responsibility for maintaining system-wide distribution inventory from Norco to third party distributors. As a result, as of December 27, 2015, inventory consisted primarily of food, paper products and supplies stored in and used by Company restaurants and was stated at lower of first-in, first-out (“FIFO”) or market. The valuation of such restaurant inventory requires us to estimate the amount of obsolete and excess inventory based on estimates of future retail sales by Company-owned restaurants. Overestimating retail sales by Company-owned restaurants could result in the write-down of inventory which would have a negative impact on the gross margin of such Company-owned restaurants.

The Company periodically evaluates the realizability of its deferred tax assets based upon the Company’s analysis of existing tax credits by jurisdiction and expectations of the Company’s ability to utilize these tax assets through a review of estimated future taxable income and establishment of tax strategies. These estimates could be materially impacted by changes in future taxable income, the results of tax strategies or changes in tax law.

The Company recognizes food and supply revenue when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Franchise revenue consists of income from license fees, royalties, and area development and foreign master license sales. License fees are recognized as income when there has been substantial performance of the agreement by both the franchisee and the Company, generally at the time the restaurant is opened. Royalties are recognized as income when earned.

The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 27, 2015 and December 28, 2014, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information it is required to disclose in the reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including the Company’s principal executive officer and principal financial officer, or persons performing similar functions, have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer, or persons performing similar functions, have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. During the most recent fiscal quarter, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to claims and legal actions in the ordinary course of its business. The Company believes that all such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company’s annual results of operations, cash flows or financial condition if decided in a manner that is unfavorable to the Company.

Item 1A. Risk Factors

Not required for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds

On May 23, 2007, the board of directors of the Company approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase of up to 1,016,000 shares of the Company’s common stock in the open market or in privately negotiated transactions. On June 2, 2008, the Company’s board of directors amended the 2007 Stock Purchase Plan to increase the number of shares the Company may repurchase by 1,000,000 shares to a total of 2,016,000 shares. On April 22, 2009, the board of directors further amended the 2007 Stock Purchase Plan by increasing the aggregate number of shares the Company may repurchase by 1,000,000 shares to a total of 3,016,000 shares. The 2007 Stock Purchase Plan does not have an expiration date. There were no stock purchases in the three months ending December 27, 2015. As of December 27, 2015, up to an additional 848,425 shares could be purchased under the 2007 Stock Purchase Plan.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1 Amended and Restated Articles of Incorporation of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed January 8, 2015).

3.2 Amended and Restated By-laws of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed January 8, 2015).

10.1 Form of Restricted Stock Unit Award Agreement under the Pizza Inn Holdings, Inc. 2015 Long-Term Incentive Plan.

31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1 Section 1350 Certification of Principal Executive Officer.

32.2 Section 1350 Certification of Principal Financial Officer.

101 Interactive data files pursuant to Rule 405 of Regulation S-T.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RAVE RESTAURANT GROUP, INC.

(Registrant)

By: /s/ Randall E. Gier

Randall E. Gier

President and Chief Executive Officer

(Principal Executive Officer)

By: /s/ Timothy E. Mullany

Timothy E. Mullany

Chief Financial Officer

(Principal Financial Officer)

Dated: February 10, 2016