RAVE RESTAURANT GROUP, INC. - Quarter Report: 2023 September (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended September 24, 2023 or
| ☐ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ________ to ________.
Commission File Number: 0-12919
RAVE RESTAURANT GROUP, INC.
(Exact name of registrant as specified in its charter)
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Missouri
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45-3189287
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3551 Plano Parkway
The Colony, Texas 75056
(Address of principal executive offices)
(Zip Code)
(469) 384-5000
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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||
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Common Stock, $0.01 par value
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RAVE
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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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☑
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Smaller reporting company ☑
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Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of October 30, 2023, 14,586,566
shares of the issuer’s common stock were outstanding.
RAVE
RESTAURANT GROUP, INC.
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Page
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3
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4
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|||
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5
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|||
| 6 | |||
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7
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Item 2.
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13
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Item 3.
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19 | ||
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Item 4.
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19 | ||
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PART II. OTHER INFORMATION
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Item 1.
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20 | ||
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Item 1A.
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20 | ||
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Item 2.
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20 | ||
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Item 3.
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20 | ||
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Item 4.
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20 | ||
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Item 5.
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20 | ||
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Item 6.
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21 | ||
| 22 | |||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAVE RESTAURANT GROUP, INC.
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended
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||||||||
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September 24,
2023
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September 25,
2022
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|||||||
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REVENUES
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$
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3,089
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$
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3,005
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||||
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COSTS AND EXPENSES:
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||||||||
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General and administrative expenses
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1,319
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1,343
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||||||
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Franchise expenses
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1,172
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1,202
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||||||
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Impairment of long-lived assets and other lease charges
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—
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5
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||||||
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Bad debt expense
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25
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4
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||||||
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Interest expense
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—
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1
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||||||
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Depreciation and amortization expense
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55
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51
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||||||
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Total costs and expenses
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2,571
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2,606
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||||||
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INCOME BEFORE TAXES
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518
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399
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||||||
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Income tax expense
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(132
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)
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(92
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)
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||||
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NET INCOME
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386
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307
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||||||
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INCOME PER SHARE OF COMMON STOCK - BASIC:
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$
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0.03
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$
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0.02
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||||
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INCOME PER SHARE OF COMMON STOCK - DILUTED:
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$
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0.03
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$
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0.02
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||||
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Weighted average common shares outstanding - basic
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14,154
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16,632
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||||||
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Weighted average common shares outstanding - diluted
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14,762
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16,632
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||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
RAVE RESTAURANT GROUP, INC.
(In thousands, except share amounts)
(Unaudited)
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September 24,
2023
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June 25,
2023
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|||||||
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ASSETS
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||||||||
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CURRENT ASSETS
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||||||||
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Cash and cash equivalents
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$
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5,944
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$
|
5,328
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||||
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Accounts receivable, less allowance for bad debts of $12
and $58, respectively
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1,072
|
1,145
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||||||
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Notes receivable, current
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122
|
105
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||||||
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Assets held for sale
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34 | 19 | ||||||
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Deferred contract charges, current
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31
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33
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||||||
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Prepaid expenses and other current assets
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388
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204
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||||||
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Total current assets
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7,591
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6,834
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||||||
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LONG-TERM ASSETS
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||||||||
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Property and equipment, net
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231
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258
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||||||
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Operating lease right of use assets, net
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1,115
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1,227
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||||||
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Intangible assets definite-lived, net
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312
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328
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||||||
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Notes receivable, net of current portion
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44
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28
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||||||
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Deferred tax asset, net
|
5,234 | 5,342 | ||||||
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Deferred contract charges, net of current portion
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202
|
220
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||||||
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Total assets
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$
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14,729
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$
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14,237
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||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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||||||||
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CURRENT LIABILITIES
|
||||||||
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Accounts payable - trade
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$
|
583
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$
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502
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||||
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Accrued expenses
|
1,172 | 891 | ||||||
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Operating lease liabilities, current
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446
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463
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||||||
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Deferred revenues, current
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222
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342
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||||||
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Total current liabilities
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2,423
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2,198
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||||||
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LONG-TERM LIABILITIES
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||||||||
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Operating lease liabilities, net of current portion
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848
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958
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||||||
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Deferred revenues, net of current portion
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602
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690
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||||||
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Total liabilities
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3,873
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3,846
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||||||
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COMMITMENTS AND CONTINGENCIES (SEE NOTE C)
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||||||||
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SHAREHOLDERS’ EQUITY
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Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,090,058
and 25,090,058 shares, respectively; outstanding 14,154,453 and 14,154,453 shares, respectively
|
251
|
251
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||||||
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Additional paid-in capital
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37,808
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37,729
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||||||
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Retained earnings
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2,825
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2,439
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||||||
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Treasury stock, at cost
|
||||||||
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Shares in treasury: 10,935,605 and 10,935,605 respectively
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(30,028
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)
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(30,028
|
)
|
||||
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Total shareholders’ equity
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10,856
|
10,391
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||||||
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Total liabilities and shareholders’ equity
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$
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14,729
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$
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14,237
|
||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
RAVE RESTAURANT GROUP, INC.
(In thousands)
(Unaudited)
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Common Stock
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Treasury Stock
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|||||||||||||||||||||||||||
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Shares
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Amount
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Additional
Paid-in
Capital
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Retained
Earnings
|
Shares
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Amount
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Total
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||||||||||||||||||||||
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Balance, June 26, 2022
|
25,090
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$
|
251
|
$
|
37,384
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$
|
826
|
(7,579
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)
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$
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(25,049
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)
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$
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13,412
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||||||||||||||
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Stock-based compensation expense
|
— |
— | 86 | — | — |
— | 86 | |||||||||||||||||||||
| Purchase of treasury stock |
— | — | — | — | (1,111 | ) | (1,384 | ) | (1,384 | ) | ||||||||||||||||||
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Net income
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—
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—
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—
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307
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—
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—
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307
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|||||||||||||||||||||
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Balance, September 25, 2022
|
25,090
|
$
|
251
|
$
|
37,470
|
$
|
1,133
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(8,690
|
)
|
$
|
(26,433
|
)
|
$
|
12,421
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||||||||||||||
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Common Stock
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Treasury Stock
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|||||||||||||||||||||||||||
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Shares
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Amount
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Additional
Paid-in
Capital
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Retained
Earnings
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Shares
|
Amount
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Total
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||||||||||||||||||||||
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Balance, June 25, 2023
|
25,090
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$
|
251
|
$
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37,729
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$
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2,439
|
(10,936
|
)
|
$
|
(30,028
|
)
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$
|
10,391
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||||||||||||||
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Stock-based compensation expense
|
—
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—
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79
|
—
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—
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—
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79
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|||||||||||||||||||||
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Net income
|
—
|
—
|
—
|
386
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—
|
—
|
386
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|||||||||||||||||||||
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Balance, September 24, 2023
|
25,090
|
$
|
251
|
$
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37,808
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$
|
2,825
|
(10,936
|
)
|
$
|
(30,028
|
)
|
$
|
10,856
|
||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
RAVE RESTAURANT GROUP, INC.
(In thousands)
(Unaudited)
|
Three Months Ended
|
||||||||
|
September 24,
2023
|
September 25,
2022
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|||||||
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CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
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Net income
|
$
|
386
|
$
|
307
|
||||
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Adjustments to reconcile net income to cash provided by operating activities:
|
||||||||
|
Impairment of long-lived assets and other lease charges
|
—
|
5
|
||||||
|
Stock-based compensation expense
|
79
|
86
|
||||||
|
Depreciation and amortization
|
34
|
35
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||||||
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Amortization of operating right of use assets
|
112
|
108
|
||||||
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Amortization of intangible assets definite-lived
|
21 | 16 | ||||||
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Allowance for bad debts
|
25
|
4
|
||||||
|
Deferred income tax
|
108 | — | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
48
|
491
|
||||||
|
Notes receivable
|
(48
|
)
|
5
|
|||||
|
Deferred contract charges
|
20
|
9
|
||||||
|
Prepaid expenses and other assets
|
(184
|
)
|
38
|
|||||
|
Accounts payable - trade
|
81
|
20
|
||||||
|
Accrued expenses
|
281
|
284
|
||||||
|
Operating lease liabilities
|
(127
|
)
|
(120
|
)
|
||||
|
Deferred revenues
|
(208 | ) | (153 | ) | ||||
|
Cash provided by operating activities
|
628 |
1,135
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Payments received on notes receivable
|
15
|
30
|
||||||
|
Purchase of intangible assets definite-lived
|
(5 | ) | (39 | ) | ||||
|
Purchase of property and equipment
|
(22
|
)
|
(14
|
)
|
||||
|
Cash used in investing activities
|
(12
|
)
|
(23
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Purchase of treasury stock
|
— | (1,384 | ) | |||||
|
Payments on short term loan
|
—
|
(30
|
)
|
|||||
|
Cash used in financing activities
|
—
|
(1,414
|
)
|
|||||
| Net increase/(decrease) in cash and cash equivalents |
616
|
(302
|
)
|
|||||
|
Cash and cash equivalents, beginning of period
|
5,328
|
7,723
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
5,944
|
$
|
7,421
|
||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
| CASH (REFUNDED)/PAID FOR: | ||||||||
|
Income taxes
|
$
|
(5
|
)
|
$
|
9
|
|||
RAVE RESTAURANT GROUP, INC.
Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet
Units”), delivery/carry-out(“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) 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 25, 2023.
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.
Fiscal Quarters
The three month periods ended September 24, 2023 and September 25, 2022 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.
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.
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 funds, and 6) supplier convention funds.
Franchise royalties, which are based on a percentage of franchise restaurant 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 to 20 years. Fees received for renewal periods are amortized over the life of the renewal period.
Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign
master license agreements. Area development exclusivity fees are included in deferred revenue in the accompanying Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development
agreement as the stores are opened. Area development exclusivity fees that include rights to sub-franchise are amortized as revenue over the term of the contract.
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 third parties. The Company’s two subleases have terms that end in 2023 and 2025. The sublease agreements are noncancelable through the end of the term and both parties have substantive rights to
terminate the lease when the term is complete. Sublease agreements are not capitalized and are recorded as rental income in the period that rent is received.
Total revenues consist of the following (in thousands):
|
Three Months Ended
|
||||||||
|
September 24, 2023
|
September 25, 2022
|
|||||||
|
Franchise royalties
|
$
|
1,225
|
$
|
1,214
|
||||
|
Supplier and distributor incentive revenues
|
1,100
|
1,070
|
||||||
|
Franchise license fees
|
101
|
30
|
||||||
| Area development exclusivity fees and foreign master license fees |
4
|
4
|
||||||
| Advertising funds contributions | 422 | 466 | ||||||
| Supplier convention funds |
187 | 172 | ||||||
|
Rental income
|
46
|
47
|
||||||
| Other |
4 | 2 | ||||||
|
$
|
3,089
|
$
|
3,005
|
|||||
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.
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.
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 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 rents restaurant space from third parties for its Company-owned restaurants. Restaurant space agreements are typically
structured with non-cancelable terms of to 10 years. The Company has concluded that its restaurant 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 agreements subsequent to the primary term.
The Company subleases some of its restaurant space to third parties. The Company’s two subleases have terms that end in 2023 and 2025. The sublease agreements are noncancelable through the end of the term and both parties have substantive rights to
terminate the lease when the term is complete. Sublease agreements are not capitalized and are recorded as rental income in the period that rent is received.
As of September 24, 2023 and June 25, 2023, the Company had no
Company-owned restaurants.
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 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.
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 24, 2023 and September 25, 2022, the majority of which is
included in general and administrative expense in the accompanying Condensed Consolidated Statements of Income, are as follows (in thousands):
|
Three Months Ended
|
Three Months Ended |
|||||||
|
September 24, 2023
|
September 25, 2022 |
|||||||
|
Operating lease cost
|
$
|
123
|
$ | 124 | ||||
|
Sublease income
|
(47
|
)
|
(47 | ) | ||||
|
Total lease expense, net of sublease income
|
$
|
76
|
$ |
77 | ||||
Weighted average remaining lease term and weighted average discount rate for operating leases are as follows:
|
September 24, 2023
|
September 25, 2022
|
|||||||
|
Weighted average remaining lease term
|
1.8 Years
|
2.8 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
|
||||
| 2024 |
$ | 370 | ||
|
2025
|
433 | |||
|
2026
|
382 | |||
|
2027
|
191 | |||
|
Total operating lease payments
|
$ | 1,376 | ||
|
Less: imputed interest
|
(82 | ) |
||
|
Total operating lease liability
|
$ | 1,294 | ||
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 24, 2023 and September 25, 2022, the Company recognized stock-based compensation expense related to stock options of zero
and $4 thousand, respectively. As of September 24, 2023, 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 24,
2023
|
September 25,
2022
|
|||||||
|
Shares
|
Shares
|
|||||||
|
Outstanding at beginning of year
|
151,750
|
111,750
|
||||||
|
Granted
|
—
|
40,000
|
||||||
|
Exercised
|
—
|
—
|
||||||
|
Forfeited/Canceled/Expired
|
(8,664
|
)
|
—
|
|||||
|
Outstanding at end of period
|
143,086
|
151,750
|
||||||
|
Exercisable at end of period
|
143,086
|
111,750
|
||||||
Restricted Stock Units:
For the three months ended September 24, 2023 and September 25, 2022, the Company had stock-based compensation expense related to RSUs of
$79 thousand and $82
thousand, respectively. As of September 24, 2023, there was $138 thousand unamortized stock-based compensation expense related to
RSUs.
As of September 24, 2023 and September 25, 2022, the RSUs will be amortized during the next and 13 months, respectively. A summary of the status
of restricted stock units as of September 24, 2023, and changes during the three months then ended is presented below:
|
Three Months Ended
|
||||||||
|
September 24,
2023
|
September 25,
2022
|
|||||||
|
Unvested at beginning of year
|
885,687
|
885,687
|
||||||
|
Performance Adjustment
|
(25,223
|
)
|
—
|
|||||
|
Granted
|
—
|
—
|
||||||
|
Issued
|
—
|
—
|
||||||
|
Forfeited
|
—
|
—
|
||||||
|
Unvested at end of period
|
860,464
|
885,687
|
||||||
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 24, 2023
|
September 25, 2022
|
|||||||
|
Net income available to common shareholders
|
$
|
386
|
$
|
307
|
||||
|
BASIC:
|
||||||||
|
Weighted average common shares
|
14,154
|
16,632
|
||||||
|
Net income per common share
|
$
|
0.03
|
$
|
0.02
|
||||
|
DILUTED:
|
||||||||
|
Weighted average common shares
|
14,154
|
16,632
|
||||||
|
Dilutive RSU
|
589
|
—
|
||||||
|
Dilutive stock options
|
19
|
—
|
||||||
|
Weighted average common shares outstanding
|
14,762
|
16,632
|
||||||
|
Net income per common share
|
$
|
0.03
|
$
|
0.02
|
||||
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.
For the three months ended September 25, 2022, exercisable options to purchase 111,750 shares of common stock at exercise prices ranging 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 25, 2022, zero RSUs were excluded from the computation of diluted EPS.
Note F - Income Taxes
For the
three months ended September 24, 2023, the Company recorded an income tax expense of $132 thousand. For the three months
ended September 25, 2022, the Company recorded an income tax expense of $92 thousand. For the three months ended September
24, 2023, the federal and state tax expense were $108 thousand and $24 thousand, respectively. For the three months ended September 25, 2022, the federal and state tax expense were $82 thousand and $10 thousand, respectively.
The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable
income, reversal of existing taxable temporary differences, and tax planning strategies. 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 two
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 and (2) Pie Five Franchising. 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. Other revenue consists of
nonrecurring items.
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.
The Company-Owned Restaurants segment includes sales and operating results for all Company-owned
restaurants. Assets for this segment include equipment, furniture and fixtures for the Company-owned restaurants. As of September 24, 2023, the Company did not operate any Company-owned restaurants.
Corporate administration and other assets primarily include cash and short-term investments, as
well as furniture and fixtures located at the corporate office and trademarks and other intangible assets. All assets are located within the United States.
Summarized in the following tables are net operating revenues, depreciation and amortization expense, and income before taxes for the Company’s reportable segments as of the three months ended
September 24, 2023 and September 25, 2022 (in thousands):
|
Three Months Ended
|
||||||||
|
September 24, 2023
|
September 25, 2022
|
|||||||
|
Net sales and operating revenues:
|
||||||||
|
Pizza Inn Franchising
|
$
|
2,604
|
$
|
2,469
|
||||
|
Pie Five Franchising
|
438
|
488
|
||||||
|
Corporate administration and other
|
47
|
48
|
||||||
|
Consolidated revenues
|
$
|
3,089
|
$
|
3,005
|
||||
|
Depreciation and amortization:
|
||||||||
|
Corporate administration and other
|
$ |
55
|
$ |
51
|
||||
|
Depreciation and amortization
|
$
|
55
|
$
|
51
|
||||
| Income before taxes: | ||||||||
|
Pizza Inn Franchising
|
$
|
1,661
|
$
|
1,511
|
||||
|
Pie Five Franchising
|
209
|
244
|
||||||
|
Combined
|
1,870
|
1,755
|
||||||
|
Corporate administration and other
|
(1,352
|
)
|
(1,356
|
)
|
||||
|
Income before taxes
|
$
|
518
|
$
|
399
|
||||
| Geographic information (revenues): | ||||||||
|
United States
|
$
|
3,036
|
$
|
2,929
|
||||
|
Foreign countries
|
53
|
76
|
||||||
|
Consolidated revenues
|
$
|
3,089
|
$
|
3,005
|
||||
| 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 25, 2023 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 25, 2023. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The
forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or
revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Results of Operations
Overview
Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco
Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn
Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors. At September
24, 2023, franchised and licensed units consisted of the following:
Three Months Ended September 24, 2023
(in thousands, except unit data)
|
Pizza Inn
|
Pie Five
|
All Concepts
|
||||||||||||||||||||||
|
Ending
Units
|
Retail
Sales
|
Ending
Units
|
Retail
Sales
|
Ending
Units
|
Retail
Sales
|
|||||||||||||||||||
|
Domestic Franchised/Licensed
|
111
|
$
|
26,030
|
26
|
$
|
4,767
|
137
|
$
|
30,797
|
|||||||||||||||
|
International Franchised
|
22
|
—
|
22
|
|||||||||||||||||||||
The domestic units were located in 17 states predominantly situated in the southern half of the United States. The international units were located in seven foreign countries.
Basic net income per share increased $0.01 per share to $0.03 per share for the three months ended September 24, 2023, compared to the comparable period in the prior fiscal year.
The Company had net income of $0.4 million for the three months ended September 24, 2023 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $3.1 million for the three months ended September
24, 2023 compared to $3.0 million in the comparable period in the prior fiscal year. The increase in revenue was primarily due to increases in default and closed store revenues, franchise royalties, and supplier and distributor incentives.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus (COVID-19) as a pandemic, and the disease spread rapidly throughout the United States and the world.
Federal, state, and local responses to the COVID-19 pandemic, as well as our internal efforts to protect customers, franchisees, and employees, severely disrupted our business operations. Further, the COVID-19 pandemic precipitated significant
job losses and a national economic downturn that impacted the demand for restaurant food service.
Although most of our domestic restaurants continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic. During much of the COVID-19
pandemic, we experienced dramatically reduced aggregate in-store retail sales at Buffet Units and Pie Five Units, modestly offset by increased aggregate carry-out and delivery sales. The decreased aggregate retail sales correspondingly decreased
supplier rebates and franchise royalties payable to the Company.
In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and/or enhanced cleaning and disinfecting practices. As a result, the adverse
impacts of the COVID-19 pandemic have diminished in recent periods. Nonetheless, an outbreak or perceived outbreak of COVID-19 connected to restaurant dining could cause negative publicity directed at any of our brands and cause customers to
avoid our restaurants. Therefore, despite the official end of the pandemic, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.
Non-GAAP Financial Measures and Other Terms
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and
discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for
planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.
We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors, and other parties
interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe that Adjusted
EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. Management also uses these non-GAAP
financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.
The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have these meanings and are calculated as follows:
| ● |
“EBITDA” represents earnings before interest, taxes, depreciation and amortization.
|
| ● |
“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, severance, gain/loss on sale of assets, costs related to impairment and other lease
charges, franchisee default and closed store revenue/expense, and closed and non-operating store costs.
|
| ● |
“Retail sales” represents the restaurant sales reported by our franchisees and Company-owned restaurants, which may be segmented by brand or domestic/international locations.
|
| ● |
“Comparable store retail sales” includes the retail sales for restaurants that have been open for at least 18 months as of the end of the reporting period. The sales results for a restaurant that was closed
temporarily for remodeling or relocation within the same trade area are included in the calculation only for the days that the restaurant was open in both periods being compared.
|
| ● |
“Store weeks” represent the total number of full weeks that specified restaurants were open during the period.
|
| ● |
“Average units open” reflects the number of restaurants open during a reporting period weighted by the percentage of the weeks in a reporting period that each restaurant was open.
|
| ● |
“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks) divided by store weeks in the period.
|
| ● |
“Restaurant operating cash flow” represents the pre-tax income earned by Company-owned restaurants before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) impairment and
other lease charges, and (4) non-operating store costs.
|
| ● |
“Non-operating store costs” represent gain or loss on asset disposal, store closure expenses, lease termination expenses and expenses related to abandoned store sites.
|
| ● |
“Franchisee default and closed store revenue/expense” represents the net of accelerated revenues and costs attributable to defaulted area development agreements and closed franchised stores.
|
EBITDA and Adjusted EBITDA
Adjusted EBITDA for the fiscal quarter ended September 24, 2023 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):
RAVE RESTAURANT GROUP, INC.
ADJUSTED EBITDA
(In thousands)
|
Three Months Ended
|
||||||||
|
September 24, 2023
|
September 25, 2022
|
|||||||
|
Net income
|
$
|
386
|
$
|
307
|
||||
|
Interest expense
|
—
|
1
|
||||||
|
Income taxes
|
132
|
92
|
||||||
|
Depreciation and amortization
|
55
|
51
|
||||||
|
EBITDA
|
$
|
573
|
$
|
451
|
||||
|
Stock-based compensation expense
|
79
|
86
|
||||||
|
Impairment of long-lived assets and other lease charges
|
—
|
5
|
||||||
|
Franchisee default and closed store revenue
|
(64
|
)
|
—
|
|||||
|
Adjusted EBITDA
|
$
|
588
|
$
|
542
|
||||
Pizza Inn Brand Summary
The following tables summarize certain key indicators for the Pizza Inn franchised and licensed domestic units that management believes are useful in evaluating performance:
|
Three Months Ended
|
||||||||
|
September 24, 2023
|
September 25, 2022
|
|||||||
|
Pizza Inn Retail Sales - Total Domestic Units
|
(in thousands, except unit data)
|
|||||||
|
Domestic Units
|
||||||||
|
Buffet Units - Franchised
|
$
|
25,011
|
$
|
22,441
|
||||
|
Delco/Express Units - Franchised
|
999
|
1,482
|
||||||
|
PIE Units - Licensed
|
20
|
56
|
||||||
|
Total Domestic Retail Sales
|
$
|
26,030
|
$
|
23,979
|
||||
|
Pizza Inn Comparable Store Retail Sales - Total Domestic
|
24,596
|
23,028
|
||||||
|
Pizza Inn Average Units Open in Period
|
||||||||
|
Domestic Units
|
||||||||
|
Buffet Units - Franchised
|
75
|
72
|
||||||
|
Delco/Express Units - Franchised
|
37
|
47
|
||||||
|
PIE Units - Licensed
|
4
|
9
|
||||||
|
Total Domestic Units
|
116
|
128
|
||||||
Pizza Inn total domestic retail sales increased by $2.1 million, or 8.6%, for the three months ended September 24, 2023 when compared to the same period of the prior year. The
increase in domestic retail sales was primarily the result of increased buffet units versus the year ago period and increased customer engagement. Pizza Inn domestic comparable store retail sales increased by $1.6 million, or 6.8%, due to
increased customer engagement.
The following chart summarizes Pizza Inn restaurant activity for the three months ended September 24, 2023:
|
Three Months Ended September 24, 2023
|
||||||||||||||||||||
|
Beginning
Units
|
Opened
|
Concept
Change
|
Closed
|
Ending
Units
|
||||||||||||||||
|
Domestic Units:
|
||||||||||||||||||||
|
Buffet Units - Franchised
|
77
|
—
|
—
|
3
|
74
|
|||||||||||||||
|
Delco/Express Units - Franchised
|
41
|
—
|
—
|
8
|
33
|
|||||||||||||||
|
PIE Units - Licensed
|
5
|
—
|
—
|
1
|
4
|
|||||||||||||||
|
Total Domestic Units
|
123
|
—
|
—
|
12
|
111
|
|||||||||||||||
|
International Units (all types)
|
34
|
—
|
—
|
12
|
22
|
|||||||||||||||
|
Total Units
|
157
|
—
|
—
|
24
|
133
|
|||||||||||||||
The domestic Pizza Inn units decreased by 12 units during the three months ended September 24, 2023. For the three months ended September 24, 2023, the number of international Pizza Inn units
decreased by 12 units due to the termination of the Company’s master licensee in Saudi Arabia. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.
Pie Five Brand Summary
The following tables summarize certain key indicators for the Pie Five franchised and Company-owned restaurants that management believes are useful in evaluating performance:
|
Three Months Ended
|
||||||||
|
September 24,
2023
|
September 25,
2022
|
|||||||
|
(in thousands, except unit data)
|
||||||||
|
Pie Five Retail Sales - Total Units
|
||||||||
|
Total Domestic Retail Sales
|
$
|
4,767
|
$
|
5,243
|
||||
|
Pie Five Comparable Store Retail Sales - Total
|
$
|
4,717
|
$
|
4,660
|
||||
|
Pie Five Average Units Open in Period
|
||||||||
|
Total Domestic Units
|
27
|
31
|
||||||
Pie Five domestic total retail sales decreased $0.5 million, or 9.1%, for the three months ended September 24, 2023 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 31 to 27. Comparable store retail sales increased $0.1 million, or 1.2%, during the first quarter of fiscal 2024 compared to the same period of the prior
year. For the three months ended September 24, 2023, the decline in domestic retail sales is due to decreased domestic units. For the three months ended September 24, 2023, the increase in domestic comparable store retail sales is due to
increased customer engagement.
The following chart summarizes Pie Five restaurant activity for the three months ended September 24, 2023:
|
Three Months Ended September 24, 2023
|
||||||||||||||||||||
|
Beginning
Units
|
Opened
|
Transfer
|
Closed
|
Ending
Units
|
||||||||||||||||
|
Total Domestic Units
|
27
|
—
|
—
|
1
|
26
|
|||||||||||||||
The Pie Five units decreased by one unit during the three months ended September 24, 2023. We believe that Pie Five units will decrease modestly in future periods.
Financial Results
The Company defines its operating segments as Pizza Inn Franchising, Pie Five Franchising and Company-Owned Restaurants. The following is additional business segment information
for the three months ended September 24, 2023 and September 25, 2022 (in thousands):
|
Pizza Inn
Franchising
|
Pie Five
Franchising
|
Company-Owned
Restaurants
|
Corporate
|
Total
|
||||||||||||||||||||||||||||||||||||
|
Fiscal Quarter Ended
|
Fiscal Quarter Ended
|
Fiscal Quarter Ended
|
Fiscal Quarter Ended
|
Fiscal Quarter Ended
|
||||||||||||||||||||||||||||||||||||
|
September
24,
2023
|
September
25,
2022
|
September
24,
2023
|
September
25,
2022
|
September
24,
2023
|
September
25,
2022
|
September
24,
2023
|
September
25,
2022
|
September
24,
2023
|
September
25,
2022
|
|||||||||||||||||||||||||||||||
|
REVENUES:
|
||||||||||||||||||||||||||||||||||||||||
|
Franchise and license revenues
|
$
|
2,604
|
$
|
2,469
|
$
|
435
|
$
|
488
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
3,039
|
$
|
2,957
|
||||||||||||||||||||
|
Rental income
|
—
|
—
|
—
|
—
|
—
|
—
|
47
|
47
|
47
|
47
|
||||||||||||||||||||||||||||||
|
Interest income and other
|
—
|
—
|
3
|
—
|
—
|
—
|
—
|
1
|
3
|
1
|
||||||||||||||||||||||||||||||
|
Total revenues
|
2,604
|
2,469
|
438
|
488
|
—
|
—
|
47
|
48
|
3,089
|
3,005
|
||||||||||||||||||||||||||||||
|
COSTS AND EXPENSES:
|
||||||||||||||||||||||||||||||||||||||||
|
General and administrative expenses
|
—
|
—
|
—
|
—
|
—
|
—
|
1,319
|
1,343
|
1,319
|
1,343
|
||||||||||||||||||||||||||||||
|
Franchise expenses
|
943
|
958
|
229
|
244
|
—
|
—
|
—
|
—
|
1,172
|
1,202
|
||||||||||||||||||||||||||||||
|
Impairment of long-lived assets and other lease charges
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
5
|
—
|
5
|
||||||||||||||||||||||||||||||
|
Bad debt expense
|
—
|
—
|
—
|
—
|
—
|
—
|
25
|
4
|
25
|
4
|
||||||||||||||||||||||||||||||
|
Interest expense
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
1
|
—
|
1
|
||||||||||||||||||||||||||||||
|
Depreciation and amortization expense
|
—
|
—
|
—
|
—
|
—
|
—
|
55
|
51
|
55
|
51
|
||||||||||||||||||||||||||||||
|
Total costs and expenses
|
943
|
958
|
229
|
244
|
—
|
—
|
1,399
|
1,404
|
2,571
|
2,606
|
||||||||||||||||||||||||||||||
|
INCOME/(LOSS) BEFORE TAXES
|
$
|
1,661
|
$
|
1,511
|
$
|
209
|
$
|
244
|
$
|
—
|
$
|
—
|
$
|
(1,352
|
)
|
$
|
(1,356
|
)
|
$
|
518
|
$
|
399
|
||||||||||||||||||
Revenues:
Revenues are derived from franchise royalties, franchise fees and supplier and distributor incentives, advertising funds, area development exclusivity fees and foreign master
license fees, supplier convention funds, sublease rental income, interest and other income, and sales by Company-owned restaurants. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted
by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors. Total revenues for the three month period ended September 24, 2023 and for the same period in the prior
fiscal year were $3.1 million and $3.0 million, respectively.
Pizza Inn Franchise and License
Pizza Inn franchise revenues increased by $0.1 million to $2.6 million for the three month period ended September 24, 2023 as compared to the same period in the prior fiscal year.
The 5.5% increase was driven by increases in supplier incentives, domestic royalties and advertising fund revenues.
Pie Five Franchise and License
Pie Five franchise revenues decreased by $0.1 million to $0.4 million for the three month period ended September 24, 2023 as compared to the same period in the prior fiscal year.
The 10.2% decrease was driven by decreases in supplier incentives, domestic royalties and advertising fund revenues.
General and Administrative Expenses
Total general and administrative expenses remained relatively stable at $1.3 million for the three month period ended September 24, 2023 as compared to the same period of the
prior fiscal year. The 1.8% decrease in total general and administrative expenses during the three month period was primarily the result of decreased corporate expenses.
Franchise Expenses
Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise
expenses remained relatively stable at $1.2 million for the three month period ended September 24, 2023 as compared to the same period of the prior fiscal year. The 2.5% decrease was primarily due to a decrease in advertising and recruiting fees.
Impairment of Long-lived Assets and Other Lease Charges
Impairment of long-lived assets and other lease charges were zero for the three months ended September 24, 2023 compared to $5 thousand for the same fiscal period of the prior
year. The decrease was primarily due to impaired beverage equipment in the prior period.
Bad Debt Expense
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 24, 2023, bad debt expense was $25 thousand compared to the bad debt expense of $4 thousand for the same period in the prior fiscal year due to international receivables.
Interest Expense
Interest expense was zero for the three months ended September 24, 2023 compared to $1 thousand for the same fiscal period of the prior year.
Amortization and Depreciation Expense
Amortization and depreciation expense increased $4 thousand to $55 thousand for the three months ended September 24, 2023, compared to $51 thousand in the same periods of the
prior year. The increase was primarily the result of higher amortization of intangible assets.
Provision for Income Taxes
For the three months ended September 24, 2023 and September 25, 2022, the Company recorded an income tax expense of $132 thousand and $92 thousand, respectively, both of which are
mostly attributable to current federal taxes. The change is due to increased income before taxes.
The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable
temporary differences, and tax planning strategies. In assessing the need for the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets.
Liquidity and Capital Resources
During the three month period ended September 24, 2023, the Company’s primary source of liquidity was proceeds from operating activities.
Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, share
based compensation, and changes in working capital. Cash provided by operating activities was $0.7 million for the three month period ended September 24, 2023 compared to cash provided by operating
activities of $1.1 million for the three month period ended September 25, 2022. The primary driver of decreased operating cash flow during the three month period ended September 24, 2023 was decreased collections of accounts receivable related to
the employee retention credit.
Cash flows from investing activities reflect net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities
during the three month period ended September 24, 2023 was $12 thousand compared to cash used in investing activities of $23 thousand for the three months ended September 25, 2022.
Cash flows used in financing activities generally reflect changes in the Company’s stock and debt activity during the period. Net cash used by financing activities was zero for
the three month period ended September 24, 2023 compared to net cash used by financing activities of $1.4 million for the three month period ended September 25, 2022. Net cash used by financing activities for the three months ended September 25,
2022 was primarily attributable to repurchases of the Company’s common stock.
Management believes the cash on hand combined with net cash provided by operations will be sufficient to fund operations for the next 12 months and beyond.
Employee Retention Credit
On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law. The CAA expanded eligibility for an employee retention credit for companies
impacted by the COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees. This payroll tax credit was a refundable
tax credit against certain federal employment taxes. For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit, $0.6 million of which was collected in the first quarter of
fiscal 2023.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of assets,
liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances. Estimates and
assumptions are reviewed periodically. Actual results could differ materially from estimates.
The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and
therefore require subjective judgments. Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.
Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The Company records an allowance for doubtful receivables to
allow for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from
the Company’s estimates.
The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is
evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value. If impairment is indicated, the carrying value of an impaired asset is
reduced to its fair value, based on discounted estimated future cash flows.
Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and
convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. Royalties and advertising fund
revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.
The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable
temporary differences, and tax planning strategies. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not”
standard. In assessing the need for the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight is given to evidence
that can be objectively verified, including recent operating performance.
The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present, and
disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than
not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. As of September 24, 2023 and September 25, 2022, 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.
Not required for a smaller reporting company.
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
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 annual results of operations or
financial condition if decided in a manner that is unfavorable to the Company.
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
On May 23, 2007, the Company’s board of directors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase on our behalf of up to 1,016,000 shares
of our 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 of common stock the Company may repurchase by
1,000,000 shares to a total of 2,016,000 shares. On April 22, 2009, the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a
total of 3,016,000 shares. On June 28, 2022, the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 5,000,000 shares to a total of 8,016,000
shares. During the three months ended September 24, 2023, the Company repurchased zero outstanding shares of its common stock leaving 1,997,974 shares that may yet be repurchased under the 2007 Stock Purchase Plan.
The Company’s ability to repurchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the SEC. Subsequent to
September 24, 2023, the Company has not repurchased any outstanding shares but may make further repurchases under the 2007 Stock Purchase Plan. The Company may also repurchase shares of the Company’s common stock other than pursuant to the 2007
Stock Purchase Plan or other publicly announced plans or programs.
Not applicable.
Not applicable.
None.
| 1. |
The financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.
|
| 2. |
Any financial statement schedule filed as part of this report is listed in the Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.
|
| 3. |
Exhibits:
|
|
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).
|
|
|
Amended and Restated Bylaws 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).
|
|
|
Description of Registrant’s Securities. (filed as Exhibit 4.4 to Form 10-K for the fiscal year ended June 27, 2021 and incorporated herein by reference).
|
|
|
2015 Long Term Incentive Plan of the Company (filed as Exhibit 10.1 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*
|
|
|
Form of Stock Option Grant Agreement under the Company’s 2015 Long Term Incentive Plan (filed as Exhibit 10.2 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*
|
|
|
Form of Restricted Stock Unit Award Agreement under the Company’s 2015 Long-Term Incentive Plan (filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended December 27, 2015 and
incorporated herein by reference).*
|
|
|
Lease Agreement dated November 1, 2016, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.4 to Form 10-K for the year ended June 30, 2019 and
incorporated herein by reference).*
|
|
|
First Amendment to Lease and Expansion dated July 1, 2017, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.5 to Form 10-K for the year ended June
30, 2019 and incorporated herein by reference).*
|
|
|
Second Amendment to Lease Agreement effective June 1, 2020, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.6 to Form 10-K
for the fiscal year ended June 27, 2021 and incorporated herein by reference).
|
|
|
Letter agreement dated October 18, 2019, between Rave Restaurant Group, Inc. and Brandon Solano (filed as Exhibit 10.1 to Form 8-K filed October 21, 2019 and incorporated herein by
reference).*
|
|
|
Letter agreement dated November 4, 2019, between Rave Restaurant Group, Inc. and Mike Burns (filed as Exhibit 10.1 to Form 8-K filed November 15, 2019 and incorporated herein by reference).*
|
|
|
Letter agreement dated June 16, 2021, between Rave Restaurant Group, Inc. and Clinton Fendley (filed as Exhibit 10.1 to Form 8-K filed June 17, 2021 and incorporated herein by reference).*
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
|
|
|
Section 1350 Certification of Principal Executive Officer.
|
|
|
Section 1350 Certification of Principal Financial Officer.
|
|
|
101
|
Interactive data files pursuant to Rule 405 of Regulation S-T.
|
*Management contract or compensatory plan or agreement.
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/ Brandon L. Solano
|
||
|
Brandon L. Solano
|
|||
|
Chief Executive Officer
|
|||
|
(principal executive officer)
|
|||
|
By:
|
/s/ Clinton D. Fendley
|
||
|
Clinton D. Fendley
|
|||
|
Chief Financial Officer
|
|||
|
(principal financial officer)
|
|||
|
Dated: November 2, 2023
|
|||
22