UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549


FORM 10-K

(Mark One)

[X]Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 25, 2017.

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

[ ]

☒
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 27, 2021 or
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____.


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 incorporation or organization) (I.R.S. Employer
incorporation or organization)Identification No.)

3551 Plano Parkway 
The Colony, Texas 75056
(Address of principal executive offices)(Zip Code)


Registrant’s telephone number, including area code:(469) 384-5000


Securities registered pursuant to Section 12(b) of the Act:


Title of each classTrading Symbol(s) Name of each exchange on which registered
Common stock,Stock, $0.01 par value $.01 each NASDAQRAVENasdaq Capital Market


Securities registered pursuant to Section 12(g) of the Act:None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ NoÖ

☒


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ NoÖ

☒


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. YesÖ ☒ No ___

☐


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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes_Ö_ No__


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Yes ☒ No ☐


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitionsdefinition of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. □

Large accelerated filer__ Accelerated filer__ Non-accelerated filer__ Smaller reporting companyÖ

Emerging growth company ____


Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☒Smaller reporting company ☒
Emerging growth company ☐

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 ___☐ NoÖ

☒


As of December 25, 2016,27, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $16.9$16.2 million computed by reference to the price at which the common equity was last sold on the NASDAQ Capital Market.


As of September 20, 2017,August 30, 2021, there were 14,282,55818,004,904 shares of the registrant’s common stock outstanding.


DOCUMENTS INCORPORATED BY REFERENCE


Portions of the registrant’s definitive proxy statement, to be filed pursuant to Section 14(a) of the Securities Exchange Act in connection with the registrant’s annual meeting of shareholders scheduled for November 16, 2017,December 14, 2021, have been incorporated by reference in Part III of this report.



Forward-Looking Statements


This Form 10-K contains certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are intended to be covered by the safe harbors created thereby.  Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or similar expressions.  These statements include the plans and objectives of management for future operations, including plans and objectives relating to future growth of our business activities and availability of funds.  Statements that address business and growth strategies, performance goals, projected financial condition and operating results, our understanding of our competition, industry and market trends, and any other statements or assumptions that are not historical facts are forward-looking statements.


The forward-looking statements included in this Form 10-K are based on current expectations that involve numerous risks and uncertainties.  Assumptions relating to these forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions, regulatory framework and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.  Although we believe that the assumptions underlying these forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate.  In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of such information should not be regarded as a representation that our objectives and plans will be achieved.

achieved.


PART I


ITEM 1. BUSINESS.

ITEM 1.BUSINESS.


General


Rave Restaurant Group, Inc. and, through its subsidiaries (collectively, referred to as the “Company” or in the first person notations of “we”,“we,” “us” andor “our”) franchisefranchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and operate and franchisefranchises 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 provide or facilitate the procurement and distribution of food, equipment and suppliessupply distribution to our domestic and international system of restaurants through our Norco Restaurant Services Company (“Norco”) division and through agreements with third party distributors.


As of June 25, 2017,27, 2021, we owned and operated 13 Pie Five restaurants (“Pie Five Units”). As of that date, we also had 7133 franchised Pie Five Units, and 221156 franchised Pizza Inn restaurants.restaurants and 11 licensed PIE Units.  The 161124 domestic franchised Pizza Inn restaurants were comprised of 93 pizza buffet restaurants (“70 Buffet Units”), 11 delivery/carry-out restaurants (“Units, 10 Delco Units”)Units and 57 express restaurants (“44 Express Units”). The 60Units.  As of June 27, 2021, there were 32 international franchised Pizza Inn restaurants were comprised of 12 Buffet Units, 40 Delco Units and eight Express Units.restaurants.  Domestic Pizza Inn restaurants and kiosks were located predominantly in the southern half of the United States, with Texas, Arkansas, North Carolina and Mississippi accounting for approximately 23%25%, 17%21%, 17%16% and 9%8%, respectively, of the total number of domestic restaurants.

units.


Our History


The Company has offered consumers affordable, high quality pizza since 1958, when the first Pizza Inn restaurant opened in Dallas, Texas.  We awarded our first franchise in 1963 and opened our first buffet restaurant in 1969.  We began franchising the Pizza Inn brand internationally in the late 1970s.  In 1993, our stock began trading on the NASDAQ Stock Market, and presently trades on the NASDAQ Capital Market under the ticker symbol “RAVE.”  In June 2011, we opened the first Pie Five restaurant in Ft. Worth, Texas.  In November 2012, we signed our first franchise development agreement for Pie Five.

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  In 2019, we launched the PIE kiosk and convenience store solution to meet the consumer demand for tasty and high-quality pizzas within a grab-and-go delivery model.


Our Concepts


We operate and franchise restaurant concepts under two distinct brands: Pizza Inn and Pie Five and Pizza Inn.

Pie Five

Pie Five is a fast-casual pizza concept that creates individualized pizzas which are baked in 140 seconds in our specially designed oven. Pizzas are created at the direction of our customers who choose from a variety of freshly prepared and displayed toppings, cheeses, sauces and doughs and complete their purchase process in less than five minutes. Customers can also get freshly prepared side salads, also made to order from our recipes or at the customer's direction. They can also choose from several baked daily desserts like brownies, cookie pies, and cakes. A variety of soft beverages are available, as well as beer and wine in some locations.Pie Five restaurants offer items at prices from $5.99 to $12.99, and the average ticket price per meal, including a drink, was approximately $8.45 per person for fiscal year 2017. The average per person ticket is slightly higher in restaurants offering beer and wine.

Pie Five restaurants typically occupy leased, in-line or end-cap space of between 1,800 and 2,400 square feet in retail strip or multi-unit retail space. The restaurants typically are located in high traffic, high visibility urban or suburban sites in mid- to large-size metropolitan areas. With seating for 65 to 85 customers in most units, and patio seating where available, Pie Five restaurants primarily serve lunch and dinner to families, adults and kids of all ages. Sales are predominantly on-premise though carry out and delivery is offered as well. Future sales growth initiatives may include expanded text ordering, catering services, and offerings of wings, sandwiches, and large pizzas. Due to the relatively compact footprint of the restaurants, and other operating advantages, we believe Pie Five is also well suited for non-traditional locations such as airports.

Five.


Pizza Inn


We franchise Buffet Units, Delco Units and Express Units under the Pizza Inn brand.  Additionally, we license PIE Units under the Pizza Inn brand.  Buffet Units and Delco Units feature crusts that are hand-made from dough made fresh in the restaurant each day.  Our pizzas are made with a proprietary all-in-one flour mixture, real mozzarella cheese and a proprietary mix of classic pizza spices.  In international markets, the menu mix of toppings and side items is occasionally adapted to local tastes.


Buffet Units offer dine-in, carryout and catering service and, in many cases, also offer delivery service.  Buffet Units offer a variety of pizza crusts with standard toppings and special combinations of toppings in addition to pasta, salad, sandwiches, appetizers, desserts and beverages, including beer and wine in some locations, in an informal, family-oriented atmosphere.  We occasionally offer other items on a limited promotional basis.  Buffet Units are generally located in free standing buildings or strip center locations in retail developments in close proximity tonear offices, shopping centers and residential areas.  The current standard Buffet Units are between 2,100 and 4,500 square feet in size and seat 120 to 185 customers.  The interior decor is designed to promote a casual, lively, contemporary, family-style atmosphere.  Some Buffet Units feature game rooms that offer a range of electronic game entertainment for the entire family. The buffet is typically offered at prices from $6.99 to $9.99, and the average ticket price, including a drink, was approximately $10.00 per person for fiscal year 2017. The average per person ticket is slightly higher in restaurants offering beer and wine.


Delco Units offer delivery and carryout service only and are typically located in shopping centers or other in-line retail developments.  Delco Units typically offer a variety of crusts and some combination of side items.  Delco Units occupy approximately 1,200 square feet, are primarily production facilities and, in most instances, do not offer seating.    The decor of the Delco Unit is designed to be bright and highly visible and feature neon lighted displays and awnings.  We have attempted to locate Delco Units strategically to facilitate timely delivery service and to provide easy access for carryout service.

While we had previously stopped opening new Delco Units, during fiscal 2021, we added two Delco Units.


Express Units serve our customers through a variety of non-traditional points of sale.  Express Units are typically located in a convenience store, food court, college campus, airport terminal, travel plaza, athletic facility or other commercial facility.  They have limited or no seating and solely offer quick carryout service of a limited menu of pizza and other foods and beverages.  An Express Unit typically occupies approximately 200 to 400 square feet and is commonly operated by the operator or food service licensee of the commercial host facility.  We have developed a high-quality pre-prepared crust that is topped and cooked on-site, allowing this concept to offer a lower initial investment and reduced labor and operating costs while maintaining product quality and consistency.  Like Delco Units, Express Units are primarily production-oriented facilities and, therefore, do not require all of the equipment, labor or square footage of the Buffet Unit.

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Historically, the Company established PIE Units to serve customers through a non-traditional, licensed pizza-only model called Pizza Inn Express. Like Delco Units and Express Units, the PIE Units are primarily production-oriented facilities and, therefore, do not require all of the equipment, labor or square footage of the Buffet Unit. The Company does not intend to open additional PIE Units in the foreseeable future.

Pie Five

Pie Five is a fast-casual pizza concept that creates individualized pizzas which are baked in our specially designed oven.  Pizzas are created at the direction of our customers who choose from a variety of freshly prepared and displayed proprietary and non-proprietary toppings, cheeses, sauces and doughs.  Customers can also get freshly prepared side salads, also made to order from our recipes or at the customer’s direction.  They can also choose from several baked daily desserts like brownies, cookie pies, and cakes.  A variety of soft beverages are available, as well as beer and wine in some locations.

Traditional Pie Five restaurants typically occupy leased, in-line or end-cap space of between 1,800 and 2,400 square feet in retail strip or multi-unit retail space.  With seating for 65 to 85 customers in most units, and patio seating where available, Pie Five restaurants primarily serve lunch and dinner to families, adults and kids of all ages.  Pie Five restaurants typically are in high traffic, high visibility urban or suburban sites in mid to large-size metropolitan areas.  Sales are predominantly on-premise though carry out and delivery are offered as well. Due to the relatively compact footprint of the restaurants, and other operating advantages, we believe Pie Five is also well suited for non-traditional locations such as airports.

Site Selection


We consider the restaurant site selection process critical to a restaurant’s long-term success and devote significant resources to the investigation and evaluation of potential sites. The site selection process includes a review of trade area demographics through the use ofusing a third partythird-party customer and site selection tool, as well as a proprietary evaluation process.  We may also rely on a franchisee’s knowledge of the trade area and market characteristics when selecting a location for a franchised restaurant. A member of our development team visits each potential domestic restaurant location.


Development and Operations


New Unit Development


We intend to expand the Pizza Inn system domestically and internationally in markets with significant long-term growth potential and where we believe we can use our competitive strengths to establish brand recognition and gain local market share.  We plan to expand our Pizza Inn branded domestic restaurant base primarily through opening new franchised restaurants with new and existing franchisees. We expect to evaluate the expandedcontinued development of new Pizza Inn Buffet and Delco Units in international markets in fiscal 2018,2022, particularly in the Middle East.


In appropriate circumstances, we grantthe Company previously granted area developer rights for Pizza Inn restaurants in new and existing domestic markets. However, the Company is no longer pursuing such agreements.  A Pizza Inn area developer typically payspaid a negotiated fee to purchase the right to operate or develop restaurants within a defined territory and, typically, agreespreviously, agreed to a multi-restaurant development schedule. The area developer assistsassisted us in local franchise service and quality control in exchange for half of the franchise fees and royalties from all restaurants within the territory during the term of the agreement.

In fiscal 2018, we


We intend to continue developing franchised Pie Five Units domestically and internationally. As of June 25, 2017, we had 71 franchised units open and had executed multi-year development agreements with 22 franchisees for up to an additional 174 domestic Pie Five Units.. The number of Pie Five Units subject to a development agreement is scaled relative to the estimated development potential of the specified geographic area and requires the franchisee to achieve specified unit development milestones over a period of time, typically five years, to maintain their development rights in the area. The rate at which we will be able to continue to expand the Pie Five concept through franchise development is determined in part by our success at selecting qualified franchisees, by our ability to identify satisfactory sites in appropriate markets and by our ability to continue training and monitoring our franchisees.  We intend to continue to focus on franchise development opportunities with experienced, well-capitalized, multi-restaurantrestaurant operators.  In addition, we intend to take the brand into international markets, starting with Pakistan.

markets.


Domestic Franchise Operations


Franchise and development agreements. We discontinued offering new Delco Unit franchises during fiscal 2014. Our current standard forms of domestic franchise agreements provide for the following basic terms:

  Pizza Inn   
  Buffet Unit   Express Unit   Pie Five Unit 
 Development fee per unit                     -                           -                  5,000
 Franchise fee per unit            25,000                   5,000                20,000
 Initial franchise term  20 years   5 years   10 years 
 Renewal period  10 years   5 years   5 years 
 Royalty rate % of sales 4% 5% 6%
 National Ad fund % of sales 1% 2% 2%
 Require total ad spending % of sales 5% 2% 5%


     Pizza Inn  Pie Five 
  Buffet Unit  Delco Unit  Express Unit  Pie Five Unit 
Franchise fee per unit $30,000  $10,000  $5,000  $30,000 
Initial franchise term 20 years  10 years  5 years  10 years 
Renewal period 10 years  5 years  5 years  5 years 
Royalty rate % of sales  4%  4%  4%  6%
National ad fund % of sales  3%  3%  3%  2%
Required total ad spending % of sales  4%  4%  4%  5%

Since the Pizza Inn concept was first franchised in 1963, industry franchising concepts and development strategies have evolved, and our present franchise relationships are evidenced by a variety of contractual forms.  Common to those forms are provisions that: (i) require the franchisee to follow the Pizza Inn system of restaurant operation and management, (ii) require the franchisee to pay a franchise fee, contribute a specified percentage of sales to a marketing fund managed by the Company, and continuing royalties, and (iii) except for Express Units, prohibit the development of one restaurant within a specified distance from another.

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We launched the franchise program for Pie Five in fiscal 2013. Based on the Pie Five development agreements currently in effect, we anticipate allocating significant internal resources to the growth of our Pie Five franchise and development operation in fiscal 2018.  Our Pie Five franchise agreement requires that the franchisees: (i) follow the Pie Five system of restaurant operation and management, (ii) pay a franchise fee and continuing royalties, (iii) contribute a specified percentage of sales to a marketing fund managed by the Company, and (iv) only open restaurants that comply with site and design standards determined by the Company.


Training.We offer numerous training programs for the benefit of franchisees and their restaurant crew managers.  The training programs, taught by experienced Company employees, focus on food preparation, service, cost control, sanitation, safety, local store marketing, personnel management and other aspects of restaurant operation.  The training programs include group classes, supervised work in Company-owned restaurants and special field seminars.  Initial and certain supplemental training programs are offered free of charge to franchisees, who pay their own travel and lodging expenses.  New franchisees also receive on-site training from Company employees to assist with their first two restaurant openings under their development agreements.  Restaurant managers train their staff through on-the-job training, utilizing video and printed materials produced by us.


Standards.  We require franchisee adherence to a variety of standards designed to ensure proper operations and to protect and enhance the Pizza Inn and Pie Five and Pizza Inn brands.  All franchisees are required to operate their restaurants in compliance with these written policies, standards and specifications, which include matters such as menu items, ingredients, materials, supplies, services, furnishings, decor and signs.  Our efforts to maintain consistent operations may result, from time to time, in the closing of certain restaurants that have not achieved and maintained a consistent standard of quality or operations. We also maintain adherence to our standards through ongoing support and education of our franchisees by our franchise business consultants, who are deployed locally in markets where our franchisees are located.


Domestic Kiosk License Operations

Kiosk license agreements. Our PIE Units are typically offered for five-year initial license periods with options for additional five year renewals.  PIE Unit licensees are not charged development fees, license fees, royalties, or advertising assessments.  PIE Unit license agreements require that the licensee comply with standards of the Pizza Inn brand, including marketing, kiosk system configuration, and sales and sourcing of authorized products and services. The mandated products and sourcing provisions within the PIE Unit licensing agreement result in supplier rebates for the Company.

Training.  New licensees and their PIE Unit employees must attend and successfully complete our training program, which consists of a single day of training at the licensed location.  PIE Unit managers train their staff through on-the-job training, utilizing video and printed materials produced by us.

Standards.  We require licensee adherence to a variety of standards designed to ensure proper operations and to protect and enhance the Pizza Inn brand.  All licensees are required to operate their kiosks in compliance with these written policies, standards and specifications, which include matters such as menu items, ingredients, materials, supplies, services, furnishings, decor and signs.  Our efforts to maintain consistent operations may result, from time to time, in the closing of certain kiosks that have not achieved and maintained a consistent standard of quality or operations. We also maintain adherence to our standards through ongoing support and education of our licensees by our franchise business consultants, who are deployed locally in markets where our licensees are located.

Company-Owned Restaurant Operations


As of June 25, 2017,27, 2021, we operated 13 Pie Five Unitsdid not operate any Company-owned restaurants. We presently intend to open and operate Company-owned restaurants in the Dallas/Fort Worth metropolitan area. We do not currently intend to operate any Buffet Units, Delco Units or Express Units. In addition to generating revenues and earnings, we use domestic Company-owned restaurants as test sites for new products and promotions as well as restaurant operational improvements and as a forum for training new managers and franchisees. Outside of the one Texas Pie Five Unit we opened in August 2017, we do not presently anticipate opening additional Company-owned restaurants during fiscal 2018.

future.


International Franchise Operations


We also offer master license rights to develop Pizza Inn and Pie Five restaurants in certain foreign countries, with negotiated fees, development schedules and ongoing royalties.  A master licensee for a foreign country pays a negotiated fee to purchase the right to develop and operate Pizza Inn restaurants within a defined territory, typically for a term of 20 years, plus a ten-year renewal option.  The master licensee agrees to a multi-restaurant development schedule and we train the master licensee to monitor and assist franchisees in their territory with local service and quality control, with support from us.  In return, the master licensee typically retains half the franchise fees and half the royalties on all restaurants within the territory during the term of the agreement.  Master licensees may open restaurants that they own and operate, or they may open sub-franchised restaurants owned and operated by third parties through agreements with the master licensee, but subject to our approval.


Our first franchised Pizza Inn restaurant outside of the United States opened in the late 1970s.  As of June 25, 2017,27, 2021, there were 6032 Pizza Inn restaurants operating internationally. With the exception of twoExcept for three restaurants in Honduras, all of the Pizza Inn restaurants operated or sub-licensed by our international master licensees are in the United Arab Emirates, Saudi Arabia and adjoining countries. Our ability to continue to develop select international markets is affected by a number of factors, including our ability to locate experienced, well-capitalized developers who can commit to an aggressive multi-restaurant development schedule and achieve maximum initial market penetration with minimal supervision by us. In fiscal 2018, we plan to expand the Pie Five brand internationally beginning with Pakistan.

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Food and Supply Distribution


Our Norco divisionfranchisees and licensees purchase food and supplies directly from authorized, reputable, and experienced supply and distribution companies. The Company provides product sourcing, purchasing, quality assurance, and research and development franchisee order and billing services, and logistics support functions for both the Pizza Inn and Pie Five restaurant systems.  We outsource our warehousing and distribution services to reputable and experienced restaurant distribution companies, including Performance Food Group, Inc. and its affiliates. The authorized distributors make deliveries to all domestic restaurantsunits from several distribution centers, with delivery territories and responsibilities for each determined according to geographical region.  We believe this division of responsibilities for our purchasing, franchisee support and distribution systems has resulted in lower operating costs and logistical efficiencies. Norco also arranges forAs a franchisor, the distribution of certain products and equipment to some international franchisees.

NorcoCompany is able to leverage the advantages of direct vendor negotiations and volume purchasing of food, equipment and supplies for the franchisees’ and licensees’ benefit in the form of a concentrated, one-truck delivery system, competitive pricing and product consistency.  Franchisees and licensees are able to purchasesource all products and ingredients from Norco and have them delivered by experienced and efficientauthorized distributors.  In order to assure product quality and consistency, our franchisees and licensees are required to purchase from Norcoauthorized distributors certain food products that are proprietary to the Pizza Inn and Pie Five systems, including cheese, pizza sauce, flour mixture, certain meats and spice blend.  In addition, franchiseesFranchisees and licensees may purchase other non-proprietary food products and supplies either from Norco. Alternatively, franchisees may also purchase non-proprietary products and suppliesauthorized distributors or from other suppliers who meet our requirements for quality and reliability.


Non-proprietary food and ingredients, equipment and other supplies sold by Norco are generally available from several qualified sources.  With the exception of several proprietary food products, such as cheese and dough flour, we are not dependent upon any one supplier or a limited group of suppliers.  We contract with established food processors for the production of our proprietary products according to our specifications.


We have not experienced any significant shortages of supplies or any delays in receiving our food or beverage inventories, restaurant supplies or products, and do not anticipate anybut disruption of supply chains as a result of COVID-19 or other factors could cause difficulty in obtaining inventories or supplies in the foreseeable future. Prices charged to us by our suppliers are subject to fluctuation, and we typically passfranchisees and licensees bear increased costs or benefit from savings on to our franchisees through changes in product pricing.  We do not engage in commodity hedging but enter into pricing arrangements for up to a year in advance for certain high volumehigh-volume products.


Marketing and Advertising


By communicating a common brand message at the regional, local market and restaurant levels, we believe we can create and reinforce a strong, consistent marketing message to consumers and increase our market share.  We offer or facilitate a number ofseveral ways for the brand image and message to be promoted at the local and regional levels.

The


Pizza Inn Advertising Plan Cooperative (“PIAP Cooperative”) is a Texas cooperative association that is responsible for creating and producing various marketing programs and materials, which may include print and digital advertisements, direct mail materials, social media and e-mail marketing, television and radio commercials, in-store promotional materials, and related marketing and public relations services. Each operator of a domestic Buffet Unit or Delco Unit is entitled to membership in PIAP Cooperative. Nearly all of our existing Pizza Inn franchise agreements for Buffet Units and Delco Units require the franchisees to become members of PIAP Cooperative. Members contribute 1% of their sales to PIAP Cooperative. PIAP Cooperative is managed by a board of trustees comprised of franchisee representatives who are elected by the members each year. We do not have any ownership interest in PIAP Cooperative. We provide certain administrative, marketing and other services to PIAP Cooperative and are paid by PIAP Cooperative for such services. As of June 25, 2017, substantially all of our domestic franchisees were members of PIAP Cooperative. Operators of Express Units do not participate in PIAP Cooperative. However, they contribute directly to a Pizza Inn Express Fund (“PIEF”) to help fund purchases of Express Unit marketing materials and similar expenditures. International franchisees do not participate in the PIAP Cooperative or the PIEF.

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In the past year we have allocated additional resources to the development and execution of marketing programs for the Pie Five restaurant system to benefit Pie Five franchisees and Company-owned restaurants in different metropolitan areas. Pie Five franchisees contribute a specified percentage of their sales to the Company to fund the creation and production of various marketing and advertising programs and materials, which may include print and digital advertisements, direct mail materials, customer satisfaction systems, social media and e-mail marketing, television and radio commercials, in-store promotional materials, and related marketing and public relations services.services, and consumer research.  We anticipate continuing to expandoptimize Pizza Inn and Pie Five marketing activities commensurate with the growthcontributions of the Pie Five system.

marketing funds.


Pizza Inn and Pie Five franchisees are required to conduct independent marketing efforts in addition to their participation in the national marketing programs for each brand.  We provide Company-owned and franchised restaurants with access to an assortment of local store marketing materials, including pre-approved print, radio, and digital media marketing materials.  We also provide local store marketing materials and programs specifically to support new restaurant openings.


Trademarks and Quality Control


We own various trademarks, including the names “Pizza Inn” and “Pie Five,” that are used in connection with the restaurants and have been registered with the United States Patent and Trademark Office.  The duration of our trademarks is unlimited, subject to periodic renewal and continued use.  In addition, we have obtained trademark registrations for our marks in several foreign countries and have periodically re-filed and applied for registration in others.  We believe that we hold the necessary rights for protection of the trademarks essential to our business.


Government Regulation


We and our franchisees are subject to various federal, state and local laws affecting the operation of our restaurants.  Each restaurant is subject to licensing and regulation by a number ofseveral governmental authorities, which include health, safety, sanitation, wage and hour, alcoholic beverage, building and fire agencies in the state orand municipality in which the restaurant is located.  Difficulties in obtaining, or the failure to obtain, required licenses or approvals could delay or prevent the opening of a new restaurant or require the temporary or permanent closing of an existing restaurantsrestaurant in a particular area.


We are subject to Federal Trade Commission (“FTC”) regulationregulations and to various state laws regulating the offer and sale of franchises.  The FTC requires us to furnish to prospective franchisees a franchise disclosure document containing prescribed information.  Substantive state laws that regulate the franchisor-franchisee relationship presently exist in a number of states, and bills have been introduced in Congress from time to time that would provide for further federal regulation of the franchisor-franchisee relationship in certain respects.  Some foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship.


Employees


As of June 25, 2017,27, 2021, we had 353 employees, including 49 in our corporate office and 65 full-time and 239 part-time employees at the Company-owned restaurants.23 employees. None of our employees are currently covered by collective bargaining agreements.


Industry and Competition


The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater brand recognition and financial and other resources than the Company.  Competitors include a large number of international, national and regional restaurant and pizza chains, as well as local restaurants and pizza operators.  Some of our competitors may be better established in the markets where our restaurants are or may be located.  Within the pizza segment of the restaurant industry, we believe that our primary competitors are national pizza chains and several regional chains, including chains executing a “take and bake” concept.chains.  We also compete against the frozen pizza products available at grocery stores and large superstore retailers.  In recent years, several competitors have developed fast-casual pizza concepts that compete with Pie Five in certain metropolitan areas.  A change in the pricing or other market strategies of one or more of our competitors could have an adverse impact on our sales and earnings.

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With respect to the sale of franchises and licenses, we compete with many franchisors of restaurants and other business concepts.  We believe that the principal competitive factors affecting the sale of franchises are product quality, price, value, consumer acceptance, franchisor experience and support, and the quality of the relationship maintained between the franchisor and its franchisees.  In general, there is also active competition for management personnel and attractive commercial real estate sites suitable for our restaurants.

Our Norco division competes with both national and local distributors of food and other restaurant suppliers. The distribution industry is very competitive. We believe that the principal competitive factors in the distribution industry are product quality, customer service and price. Norco or its designees are the sole authorized suppliers of certain proprietary products that all Pizza Inn or Pie Five restaurants are required to use.


ITEM 1A. RISK FACTORS.

ITEM 1A.RISK FACTORS.


Not required for a smaller reporting company.


ITEM 1B. UNRESOLVED STAFF COMMENTS.

ITEM 1B.UNRESOLVED STAFF COMMENTS.


Not applicable.


ITEM 2. PROPERTIES.

ITEM 2.PROPERTIES.


The companyCompany leases its 38,13019,576 square foot corporate office facility with average annual lease payments of approximately $9.00$18.00 per square foot.  This lease began on January 2, 2017 and has a ten yearten-year term.

The Company amended its lease agreement in June 2020 and has elected to defer one-half of the monthly base rent for the period from June 2020 through May 2021.


As of June 25, 2017,27, 2021, the Company also operated 13 Pie Five Units from leased locations. The operating leases cover premises from 1,765 to 4,634 square feethad contingent and have initial terms of from five to ten years at base rental rates of $18.00 to $42.00 per square foot and contain provisions permitting renewal for one or more specified terms.

As of June 25, 2017, the Company hasdirect lease obligations for ten additional locations.  Two of the lease obligations have been subleased and eight non-operating locations.of the lease obligations have been assigned to franchisees. These leased properties range in size from 2,0112,025 to 4,0002,850 square feet, have annual rental rates ranging from approximately $30.00 to $46.00$44.00 per square foot and expire between 20192022 and 2026.  The Company is currently pursuing alternatives for subleasing or terminating the unexpired leases. 

2028.

ITEM 3. LEGAL PROCEEDINGS.

ITEM 3.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 4. MINE SAFETY DISCLOSURES.

ITEM 4.MINE SAFETY DISCLOSURES.


Not applicable.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES.


ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

As of September 20, 2017,August 30, 2021, there were approximately 1,9101,895 stockholders of record of the Company'sCompany’s common stock.


The Company had no sales of unregistered securities during fiscal 20172021 or 2016.

2020.


The Company'sCompany’s common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “RAVE”. The following table shows the highest and lowest price per share of the common stock during each quarterly period within the two most recent fiscal years, as reported by NASDAQ.  Such prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or commission.

  High  Low 
Fiscal 2017:  
Fourth Quarter Ended 6/25/2017 $            2.29 $                 1.83
Third Quarter Ended 3/26/2017               3.01                    1.75
Second Quarter Ended 12/25/2016               3.28                    1.66
First Quarter Ended 9/25/2016               4.75                    3.02
   
Fiscal 2016:  
Fourth Quarter Ended 6/26/2016 $            5.57 $                 3.88
Third Quarter Ended 3/27/2016               7.74                    4.50
Second Quarter Ended 12/27/2015               9.70                    5.40
First Quarter Ended 9/27/2015             14.47                    8.88


  High  Low 
Fiscal 2021:
      
Fourth Quarter Ended 6/27/2021 $1.68  $1.15 
Third Quarter Ended 3/28/2021  2.09   0.85 
Second Quarter Ended 12/27/2020  2.36   0.42 
First Quarter Ended 9/27/2020  0.91   0.38 
         
Fiscal 2020:
        
Fourth Quarter Ended 06/28/2020 $1.23  $0.52 
Third Quarter Ended 3/29/2020  1.83   0.69 
Second Quarter Ended 12/29/2019  2.85   1.44 
First Quarter Ended 9/29/2019  3.21   2.04 

The Company did not pay any dividends on its common stock during the fiscal years ended June 25, 201727, 2021 or June 26, 2016.28, 2020.  Any determination to pay cash dividends in the future will be at the discretion of the Company’s board of directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant.  Currently, there is no intention to pay any dividends on our common stock.


2007 Stock Purchase Plan


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. The 2007 Stock Purchase Plan does not have an expiration date. There were no stock purchases in the fiscal year ended June 25, 2017.

27, 2021.


The Company’s ability to purchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the Securities and Exchange Commission (the “SEC”).   Subsequent to June 25, 2017,27, 2021, the Company has not repurchased any outstanding shares but may make further purchases under the 2007 Stock Purchase Plan.  The Company may also purchase shares of our common stock other than pursuant to the 2007 Stock Purchase Plan or other publicly announced plans or programs.

10


Equity Compensation Plan Information


The following table furnishes information with respect to the Company’s stock option equity compensation plans as of June 25, 2017:

  Number of securities to Weighted-average Number of securities
  be issued upon exercise exercise price of  remaining available for 
Plan of outstanding options,  outstanding options,  future issuance under
Category warrants, and rights warrants, and rights equity compensation plans
Equity compensation      
plans approved by      
security holders                              478,056  $                            4.16                                   949,600
       
Equity compensation      
plans not approved by      
security holders                                          -                                     -                                               -
       
Total                              478,056  $                            4.16                                   949,600

Additional information regarding equity compensation can be found in the notes to the consolidated financial statements.

ITEM 6. SELECTED FINANCIAL DATA

Not required for a smaller reporting company.

27, 2021:

Plan Category 
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
  
Weighted average
exercise price of
outstanding options,
warrants, and rights
  
Number of securities
remaining available for
future issuance under
equity compensation plans
 
Stock option compensation plans approved by security holders  166,750  $5.49   2,098,261 
             
Stock option compensation plans not approved by security holders  –   –   – 
             
Total  166,750  $5.49   2,098,261 

ITEM 6.Reserved

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


Results of Operations


The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Annual Report on Form 10-K and may contain certain forward-looking statements.  See “Forward-Looking Statements.”


Overview


The Company franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and operates 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 kiosks (“PIE Units”) under the trademark “Pizza Inn”.  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.  At June 25, 2017,27, 2021, Company-owned and franchised restaurants consisted of the following (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                  - $         568               13 $    15,233               13 $     15,801
 Domestic Franchised             161       87,880               71       41,929             232      129,809
 Total Domestic Units             161 $    88,448               84 $    57,162             245 $   145,610
         
         
 International Franchised               60                   -                60 

11


Fiscal Year Ended June 27, 2021
(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  135  $70,073   33  $17,734   168  $87,807 
Company-Owned  –   –   –   –   –   – 
Total Domestic Units  135  $70,073   33  $17,734   168  $87,807 
                         
International Franchised  32       –       32     

The domestic restaurantsunits were located in 2519 states predominately situated in the southern half of the United States.  The international restaurants were located in fivesix foreign countries.


The following table summarizes domestic comparable store retail sales for the Company.

  52 Weeks Ended 
  
June 27,
2021
  
June 28,
2020
 
  (in thousands) 
       
Pizza Inn Domestic Comparable Store Retail Sales $68,107  $68,812 
Pie Five Domestic Comparable Store Retail Sales  15,612   16,640 
Total Rave Comparable Store Retail Sales $83,719  $85,452 

Basic and diluted lossnet income per common share increased $0.32,$0.37 to a lossnet income of $1.18$0.09 per share for fiscal 2017,2021 compared to $0.86a net loss of $(0.28) per share in the prior fiscal year.  Diluted net income per common share increased $0.37 to net income of $0.09 per share for fiscal 2021 compared to a net loss of $(0.28) per share in the prior fiscal year. Net lossincome increased $3.6$5.7 million to a lossnet income of $12.5$1.5 million for fiscal 20172021 compared to a net loss of $8.9$4.2 million for the prior fiscal year on revenues of $57.1$8.6 million for fiscal 20172021 as compared to $60.0$10.0 million in fiscal 2016. The increased net loss over the prior year was primarily due to loss on sale of assets, additional impairment and closed store expense totaling $7.0 million. The Company also experienced lower sales and financial performance by Company-owned Pie Five stores in newer markets.

2020.


Adjusted EBITDA for the fiscal year ended June 25, 2017, decreased27, 2021, improved to a loss of $2.7$2.0 million compared to a loss of $0.1$0.6 million for the comparable 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):

    Fiscal Year Ended 
      June 25,   June 26, 
     2017 2016
 Net loss      $         (12,491)  $          (8,886)
 Interest expense                        106                       4
 Income taxes                          53                2,654
 Depreciation and amortization                     2,456                2,722
 EBITDA      $           (9,876)  $          (3,506)
 Stock compensation expense                          58                   213
 Pre-opening costs                        162                   883
 Loss on sale/disposal of assets                        882                        -
 Impairment charges, non-operating store costs and discontinued operations                  6,104                2,122
 Adjusted EBITDA      $           (2,670)  $             (102)


  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
Net income (loss) $1,520  $(4,233)
Interest expense  92   95 
Income taxes  (29)  4,078 
Depreciation and amortization  167   186 
EBITDA $1,750  $126 
Stock compensation expense (income)  80   (104)
Severance  23   157 
Gain on sale of assets  (10)  (24)
Impairment of long-lived assets and other lease charges  21   880 
Franchisee default and closed store revenue  (170)  (606)
Closed and non-operating store costs  271   137 
Adjusted EBITDA $1,965  $566 

Results of operations for the fiscal 2017years 2021 and 20162020 both included 52 weeks.


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 has 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, have severely disrupted our business operations.  Most of the domestic Pizza Inn buffet restaurants and Pie Five restaurants are in areas that were for varying periods subject to “shelter-in-place” and social distancing restrictions prohibiting in-store sales and, therefore, were limited to carry-out and/or delivery orders.  In some areas, these restrictions limited non-essential movement outside the home, which discouraged or even precluded carry-out orders.  In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and enhanced cleaning and disinfecting practices. Further, the COVID-19 pandemic has precipitated significant job losses and a national economic downturn that typically impacts the demand for restaurant food service.  Although most of our domestic restaurants have continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic.

The COVID-19 pandemic has resulted in 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 have correspondingly decreased supplier rebates and franchise royalties payable to the Company.  During the fourth quarter of fiscal 2020, we participated in a government-sponsored loan program. (See, “Liquidity and Capital Resources--PPP Loan,” below.) We also temporarily furloughed certain employees and reduced base salary by 20% for all remaining employees for the fourth quarter of fiscal 2020, as well as reducing other expenses. While the Company will remain focused on controlling expenses, future results of operations are likely to be materially adversely impacted by the pandemic and its aftermath.

We expect that Buffet Units and Pie Five Units will continue to be subject to capacity restrictions for some time as social distancing protocols remain in place. Additionally, 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. We cannot predict how long the pandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent off-premises dining will continue, or if individuals will be comfortable returning to our Buffet Units and Pie Five Units following social distancing protocols. Any of these changes could materially adversely affect the Company’s future financial performance.  However, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

Pizza Inn Brand Summary

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

  52 Weeks Ended 
  
June 27,
2021
  
June 28,
2020
 
Pizza Inn Retail Sales - Total Domestic Units (in thousands, except unit data) 
Domestic Units      
Buffet Units – Franchised $63,776  $71,267 
Delco/Express Units – Franchised  6,053   6,200 
PIE Units – Licensed  244   289 
Total Domestic Retail Sales $70,073  $77,756 
         
Pizza Inn Comparable Store Retail Sales - Total Domestic $68,107  $68,812 
         
Pizza Inn Average Units Open in Period        
Domestic Units        
Buffet Units – Franchised  77   85 
Delco/Express Units – Franchised  55   57 
PIE Units – Licensed  12   10 
Total Domestic Units  144   152 

10

Pizza Inn total domestic retail sales decreased by $7.7 million, or 9.9% compared to the prior year.  The decrease in domestic retail sales was primarily due to the effects of COVID-19.  Pizza Inn domestic comparable store retail sales decreased by $0.7 million, or 1.0%.


The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 27, 2021:

  Fiscal Year Ended June 27, 2021 
  
Beginning
Units
  Opened  
Concept
Change
  Closed  
Ending
Units
 
Domestic Units:               
Buffet Units - Franchised  83   1   (1)  13   70 
Delco/Express Units - Franchised  55   2   1   4   54 
PIE Units - Licensed  13   –   –   2   11 
Total Domestic Units  151   3   –   19   135 
                     
International Units (all types)  38   3   –   9   32 
                     
Total Units  189   6   –   28   167 

The net decrease of 16 domestic units was primarily due to declines in Buffet, Delco, and PIE units. The net decrease of six international Pizza Inn units was primarily due to closure of underperforming units in Bangladesh partially offset by new units in the Middle East. We believe that this represents a stabilizing of international unit count.

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.

      Fiscal Year Ended 
      June 25,   June 26, 
     2017 2016
Pie Five Retail Sales - Total Stores       
   Domestic - Franchised     $     41,929  $     33,681
   Domestic - Company-owned            15,233         19,629
Total domestic retail sales     $     57,162  $     53,310
        
Pie Five Comparable Store Retail Sales - Total     $     25,237  $     30,049
        
Pie Five Average Units Open in Period       
   Domestic - Franchised                   67                45
   Domestic - Company-owned                   26                31
Total domestic Units                   93                76


  52 Weeks Ended 
  
June 27,
2021
  
June 28,
2020
 
  (in thousands, except unit data) 
Pie Five Retail Sales - Total Units      
Domestic Units - Franchised $17,734  $25,771 
Domestic Units - Company-owned  —   240 
Total Domestic Retail Sales $17,734  $26,011 
         
Pie Five Comparable Store Retail Sales - Total $15,612  $16,640 
         
Pie Five Average Units Open in Period        
Domestic Units - Franchised  37   53 
Domestic Units - Company-owned  —   1 
Total Domestic Units  37   54 

Pie Five system-widedomestic total retail sales increased $3.9decreased $8.3 million, or 7.2%31.8%, for the fiscal year ended June 25, 2017 when compared to the prior year.  Compared to the fiscal year 2016, averageAverage units open in the period increaseddecreased to 37 from 76 to 93.54 the prior year.  Comparable store retail sales decreased by 16.0%$1.0 million, or 6.2% during fiscal 20172021 compared to fiscal 2016.

the prior year.


The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 25, 2017:

 Fiscal Year Ended June 25, 2017
 Beginning       Ending
 Units Opened Closed Transfer Units
          
Domestic - Franchised               57                25                17                  6                71
Domestic - Company-owned               31                   -                12                 (6)                13
Total domestic Units               88                25                29                   -                84

27, 2021:


  Fiscal Year Ended June 27, 2021 
  
Beginning
Units
  Opened  Closed  
Ending
Units
 
             
Domestic - Franchised  42   1   10   33 
Domestic - Company-owned  –   –   –   – 
Total Domestic Units  42   1   10   33 

The net decrease of four9 Pie Five Unitsunits during fiscal 20172021 was primarily the result of the closure of poor-performing units, which we believe provides us a stronger foundation for future brand growth.  We believe that thethis trend of net increase of 14 franchised Pie Five Units reflects a continuing but moderated growth as franchised stores opened primarily pursuant to previously executed domestic franchise development agreements.

13
store closures will moderate and then reverse in future periods.


 Pie Five - Company-Owned Restaurants      
 (in thousands, except store weeks and average data) Three Months EndedFiscal Year Ended
 Sept 25,Dec 25,March 26,June 25,June 25,
 20162016201720172017
 Store weeks             400            386            368             215                        1,369
 Average weekly sales        11,764       10,517       10,535        12,018                      11,122
 Average number of units               31              30              28               17                             26
      
 Restaurant sales (excluding partial weeks)          4,705         4,060         3,877          2,584                      15,226
 Restaurant sales          4,707         4,060         3,877          2,589                      15,233
      
 Loss from continuing operations before taxes           (1,505)       (6,269)        (1,013)           (887)                       (9,674)
 Allocated marketing and advertising expenses             234            204            194             130                           762
 Depreciation/amortization expense               676            628            436             224                        1,964
 Pre-opening costs                 19              47              29               67                           162
 Operations management and extraordinary expenses             227            213            195             100                           735
 Impairment and non-operating store costs             385         5,121             (26)             760                        6,240
 Restaurant operating cash flow               36            (56)           (185)             394                           189
      
 Three Months EndedFiscal Year Ended
 Sept 27,Dec 27,March 27,June 26,June 26,
 20152015201620162016
 Store weeks             327            414            452             422                        1,615
 Average weekly sales        13,297       11,725       11,645        12,005                      12,093
 Average number of units               25              32              35               33                             31
      
 Restaurant sales (excluding partial weeks)          4,348         4,854         5,263          5,066                      19,531
 Restaurant sales          4,393         4,876         5,294          5,066                      19,629
      
 Loss from continuing operations before taxes              (611)       (2,016)        (1,132)        (2,218)                       (5,977)
 Allocated marketing and advertising expenses             220            243            264             406                        1,133
 Depreciation/amortization expense               430            568            749             669                        2,416
 Pre-opening costs               424            264            115               80                           883
 Operations management and extraordinary expenses             164            172            162             150                           648
 Impairment and non-operating store costs                  -         1,010             (23)             964                        1,951
 Restaurant operating cash flow             627            241            135               51                        1,054
      

As a result of decreased store count and lower weekly average unit sales, total retail sales of
Pie Five - Company-Owned Restaurants Fiscal Year Ended 
(in thousands, except store weeks and average data) June 27,  June 28, 
  2021  2020 
Store weeks (excluding partial weeks)  –   30 
Average weekly sales  –   8,108 
Average number of units  –   1 
         
Restaurant sales (excluding partial weeks)  –   240 
Restaurant sales  –   240 
         
Loss from continuing operations before taxes  (292)  (1,006)
Allocated marketing and advertising expenses  –   12 
Depreciation/amortization expense  –   – 
Impairment, other lease charges and non-operating store costs  291   810 
Restaurant operating cash flow  (1)  (184)


We closed our single remaining Company-owned Pie Five restaurants decreased $4.4 million, or 22.4%, to $15.2 million forrestaurant during the third quarter of fiscal 2017 compared to $19.6 million for fiscal 2016.2020.  Average weekly sales for Company-owned Pie Five restaurants also decreased $971,$8.1 thousand, or 8.0%100.0%, to $11,122zero for the fiscal year ended June 25, 2017 compared to $12,093 for the same period of prior year. Company-owned Pie Five restaurant operating cash flow decreased $0.9 million, or 82.1%, during the fiscal year 2017 compared to the same period of prior year. The decline in average weekly sales and operating cash flow for Company-owned Pie Five restaurants was primarily attributable to lower sales and weaker financial performance by stores in newer markets. 27, 2021.

Loss from continuing operations before taxes for Company-owned Pie Five stores increased $3.7decreased $0.7 million for the fiscal year ended June 25, 201727, 2021 compared to the same period of the prior year. The higher lossyear primarily due to the closure of all remaining Company-owned restaurants.  Similarly, operating cash flow from continuing operations before taxes for Company-owned Pie Five restaurants was primarily the result of $6.2 millionimproved by $183 thousand to $1 thousand cash used in impairment charges and non-operating store costs and a decline in average weekly sales partially offset by lower pre-opening expenses.

14

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.

    Fiscal Year Ended 
 Pizza Inn Retail Sales - Total Domestic Stores      June 25,   June 26, 
 Domestic Units     2017 2016
        Buffet - Franchised      $     81,283  $     80,592
        Delco/Express - Franchised      $       6,597           7,212
        Buffet - Company-owned                  568              858
 Total domestic retail sales      $     88,448  $     88,662
        
 Pizza Inn Comparable Store Retail Sales - Total Domestic      $     81,799  $     81,691
        
 Pizza Inn Average Units Open in Period        
 Domestic Units        
        Buffet - Franchised                    94                95
        Delco/Express - Franchised                    63                68
        Buffet - Company-owned                      1                  1
 Total domestic units                  158              164

Total domestic Pizza Inn total retail sales decreased $0.2 million, or 0.2%fiscal 2021 compared to the prior year. The decrease$184 thousand cash used in domestic retail sales was primarily due to a net decrease in number of Buffet Units, partially offset by a net increase in Delco/Express Units opened during the year. Comparable Pizza Inn retail sales increased by 0.1%.

The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 25, 2017:

 Fiscal Year Ended June 25, 2017
 Beginning     Concept Ending
 Units Opened Closed Change Units
Domestic Units         
Buffet - Franchised               95                  3                  4                 (1)                93
Delco/Express - Franchised               66                  5                  4                  1                68
Buffet - Company-owned                 1                   -                  1                   -                   -
Total domestic Units             162                  8                  9                   -              161
          
International Units (all types)               60                   -                   -                   -                60
          
Total Units             222                  8                  9                   -              221

There was a net decrease of one domestic Pizza Inn unit during the fiscal year ending June 25, 2017. We believe this is consistent with the recent trend of modest domestic store closures. The number of international Pizza Inn units remained the same.

15
2020.


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. We believe that restaurant operating cash flow is a useful metric to investors in evaluating the ongoing operating performance of Company-owned Pie Five and Pizza Inn restaurants and comparing such store operating performance 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 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, costs related to impairment, gain/loss on scrap and sale of assets, non-operating store costs and discontinued operations.
·“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, (5) impairment charges, and (6) 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.
·“Pre-opening expenses” consist primarily of certain costs incurred prior to the opening of a Company-owned restaurant, including: (1) marketing and promotional expenses, (2) accrued rent, and (3) manager salaries, employee payroll and related training costs.


“EBITDA” represents earnings before interest, taxes, depreciation and amortization.
“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock 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.

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“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.

Financial Results

    Franchising and   Company-Owned     
    Food & Supply Distribution   Restaurants   Corporate   Total 
    Fiscal Year   Fiscal Year   Fiscal Year   Fiscal Year 
    June 25,   June 26,   June 25,   June 26,   June 25,   June 26,   June 25,   June 26, 
    2017   2016   2017   2016   2017   2016   2017   2016 
REVENUES:                
 Food and supply sales           36,282          34,879                   -                        -                   -                   -           36,282         34,879
 Franchise revenues             5,598            5,445                   -                        -                   -                   -             5,598           5,445
 Restaurant sales                     -                    -         15,233              19,629                   -                   -           15,233         19,629
 Total revenues           41,880          40,324         15,233              19,629                   -                   -           57,113         59,953
                  
COSTS AND EXPENSES:                
 Cost of sales           34,319          32,486         15,933              19,869                   -                   -           50,252         52,355
 General and administrative expenses             1,371            1,275           2,935                3,170           3,404           2,664             7,710           7,109
 Franchise expenses             3,896            3,636                   -                        -                   -                   -             3,896           3,636
 Pre-opening expenses                     -                    -              162                   883                   -                   -                162              883
 Loss on sale of assets                     -                    -                   -                        -              882                   -                882                   -
 Impairment of long-lived assets and other lease charges                    -                    -           5,877                1,698                   -                   -             5,877           1,698
 Bad debt                     -                    -                   -                        -              342              101                342              101
 Interest expense                     -                    -                   -                        -              106                  4                106                  4
      Total costs and expenses           39,586          37,397         24,907              25,620           4,734           2,769           69,227         65,786
                  
INCOME (LOSS) FROM CONTINUING OPERATIONS               
BEFORE TAXES             2,294            2,927          (9,674)              (5,991)          (4,734)          (2,769)         (12,114)          (5,833)


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 Fiscal Years ended June 27, 2021 and June 28, 2020 (in thousands):

  
Pizza Inn
Franchising
  
Pie Five
Franchising
  
Company-Owned
Stores
  Corporate  Total 
  Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
  
June 27,
2021
  
June 28,
2020
  
June 27,
2021
  
June 28,
2020
  
June 27,
2021
  June 28, 2020  
June 27,
2021
  
June 28,
2020
 
REVENUES:                              
Franchise and license revenues $6,582  $6,662  $1,800  $2,891  $–  $–  $–  $–  $8,382  $9,553 
Restaurant sales  –   –   –   –   –   240   –   –   –   240 
Rental income  —   –   –   –   –   –   200   195   200   195 
Interest income and other  –   –   16   3   –   –   (5)  37   11   40 
Total revenues  6,582   6,662   1,816   2,894   –   240   195   232   8,593   10,028 
                                         
COSTS AND EXPENSES:                                        
Cost of sales  –   –   –   –   264   439   –   –   264   439 
General and administrative expenses  –   –   –   –   7   90   4,703   5,413   4,710   5,503 
Franchise expenses  1,377   1,297   1,017   1,754   –   –   –   –   2,394   3,051 
Gain on sale of assets  –   –   –   –   –   –   (10)  (24)  (10)  (24)
Impairment of long-lived assets                                        
and other lease charges  –   –   –   –   21   717   –   163   21   880 
Bad debt  –   –   –   –   –   –   121   53   121   53 
Interest expense  –   –   –   –   –   –   92   95   92   95 
Amortization and depreciation expense  –   –   –   –   –   –   167   186   167   186 
Total costs and expenses  1,377   1,297   1,017   1,754   292   1,246   5,073   5,886   7,759   10,183 
                                         
OTHER INCOME:                                        
Gain on forgiveness of PPP loan  —   —   —   —   —   —   (657)  —   (657)  — 
Total other income  —   —   —   —   —   —   (657)  —   (657)  — 
                                         
INCOME/(LOSS) BEFORE TAXES $5,205  $5,365  $799  $1,140  $(292) $(1,006) $(4,221) $(5,654) $1,491  $(155)

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)supplier and distributer 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 restaurant operations. Financial results are dependent in large part upon the volume, pricing and cost of the products and supplies sold to franchisees.restaurants. The volume of products sold by Norco to franchiseessupplier incentive revenues 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 mix of products sold to franchisees through Norco rather than through third-party food distributors. Total revenues for fiscal 20172021 and for the same period in the prior fiscal year2020 were $57.1$8.6 million and $60.0$10.0 million, respectively.


FoodPizza Inn Franchise and Supply SalesLicense Revenues

Food and supply sales


Pizza Inn franchise revenues decreased by Norco include food and paper products and other distribution revenues. For$0.1 million to $6.6 million in fiscal 2017, food and supply sales increased 4.0% to $36.3 million2021 compared to $34.9$6.7 million for the priorin fiscal year2020. The 1.2% decrease was primarily due to an increase in salesthe effects of COVID-19.

Pie Five Franchise and License Revenues

Pie Five franchise revenues decreased by $1.1 million to franchisees. This increase was driven by an $8.3 million, or 6.9%, increase in domestic franchisee retail sales attributable to an increase in the average number of stores open in the current year when compared to prior year.

Franchise Revenue

Franchise revenue, which includes income from domestic and international royalties and license fees, increased to $5.6$1.8 million for fiscal 20172021 compared to $5.4$2.9 million for the prior fiscal year as the result of higher domestic and international royalties resulting from increased franchisee retail sales and an increase in franchise and development fees2020. The 37.7% decrease was primarily due to Pie Five store openings.

reduced restaurant count and the effects of COVID-19.


Restaurant Sales

Restaurant


We had no restaurant sales, which consist of revenue generated by Company-owned restaurants, decreased 22.4%, or $4.4 million, to $15.2 million for fiscal 2017 compared to $19.6 million for the prior fiscal year. This decrease was primarily due to the transfer or closings of 18 Company-owned stores in fiscal 2017, as well as lower average weekly sales.

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2021 because we closed our single remaining Company-owned restaurant during the third quarter of fiscal 2020.


Costs and Expenses:


Cost of Sales Total


Cost of sales primarily includes food and supply costs, distribution fees, labor costs, and general and administrative expenseslease costs directly related to Company-owned restaurant sales. These costs decreased 4.0%39.9%, or $2.1$175 thousand, to $264 thousand for fiscal 2021 compared to $439 thousand in fiscal 2020.  The decrease was primarily the result of the closure of all remaining Company-owned stores during the third quarter of fiscal 2020 offset by ongoing lease costs directly related to the closed Company-owned stores.

General and Administrative Expenses

Total general and administrative expenses decreased $0.8 million to $50.3$4.7 million for fiscal 20172021 compared to $52.4$5.5 million for the prior fiscal year. The decrease in cost of sales was primarily due to the decreased number of Company-owned Pie Five restaurants compared to the prior year.

Cost of Sales – Franchising and Food and Supply Distribution

Franchising and Food and Supply Distribution cost of sales increased 5.6%, or $1.8 million, to $34.3 million for fiscal 2017 compared to $32.5 million for the prior fiscal year. The increase in cost of sales was primarily due to increased Norco sales to franchisees compared to the prior year.

Cost of Sales – Company-Owned Stores

Company-owned Stores cost of sales decreased 19.8% or $4.0 million, to $15.9 million for fiscal 2017 compared to $19.9 million for the prior year. The decrease in cost of sales was primarily the result of lower store count.

General and Administrative Expenses Total

General and administrative expenses increased $0.6 millionfor Company-owned restaurants decreased $83 thousand to $7.7 million$7 thousand for fiscal 20172021 compared to $7.1 million for the prior fiscal year primarily due to increased payroll, legal and professional fees.

General and Administrative Expenses – Franchising and Food and Supply Distribution

Franchising and Food and Supply Distribution general and administrative expenses increased only slightly to $1.4 million compared to $1.3 million for the prior fiscal year.

General and Administrative Expenses – Company-Owned Stores

Company-owned Stores general and administrative expenses decreased $0.3 million to $2.9 million for fiscal 2017 compared to $3.2 million$90 thousand for the prior fiscal year primarily as a result of lower store count.

General and Administrative Expenses – Corporate

the closure of all remaining Company-owned stores during the third quarter of fiscal 2020. General and administrative expenses for corporate increaseddecreased $0.7 million to $3.4$4.7 million for fiscal 20172021 compared to $2.7$5.4 million for the prior year. Increases includedyear primarily as a result of a decrease in Pie Five advertising costs and payroll legal and professional fees.

related partially offset by an increase in Pizza Inn advertising costs.


Franchise Expenses


Franchise expenses include selling, general and administrative expenses directly related to the sale and continuing service of domestic and international franchises.  TheseTotal franchise expenses increaseddecreased $0.7 million to $3.9$2.4 million in fiscal 20172021 from $3.6$3.1 million in the prior fiscal year. Pizza Inn franchise expenses increased $0.1 million to $1.4 million in fiscal 2021 compared to $1.3 million in the prior fiscal year primarily due to higher payroll, travel and professional outside services during fiscal 2017.

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Pre-Opening Expense

The Company's pre-opening costs are expensed as incurred and generally includea result of an increase in payroll and other directrelated, advertising, and travel costs associated with training new managers and employees prior to openingpartially offset by a new restaurant, rent and other unit operating expenses incurred prior to opening, and promotional costs associated with the opening of Company-owned restaurants. Pre-openingdecrease in convention costs.  Pie Five franchise expenses decreased by $0.8 million to $0.2$1.0 million in fiscal 2017 from $0.92021 compared to $1.8 million in the prior fiscal year primarily due to fewer Pie Five store openings.

as a result of a reduction in advertising costs.


Impairment ExpensesGain on Sale of Assets


The Company reviews long-livedCompany’s gain on sale of assets for impairment when events or circumstances indicate thatreflects the carrying valuenet difference between the sale price of such assets may not be fully recoverable. Impairment is evaluated based onand the sum of undiscounted estimated future cash flows expected to result from use of an asset compared to its carrying value. If impairment is recognized, thenet carrying value of the impaired asset is reducedassets at the time of sale.  Gain on sale of assets decreased to its fair value, based on discounted estimated future cash flows. During$10 thousand in fiscal year 2017, the Company tested its long-lived assets for impairment and recognized pre-tax, non-cash impairment charges of $5.9 million2021 compared to $1.7 million$24 thousand in the prior year.

Impairment Expenses

Impairment of long-lived assets and other lease charges were $21 thousand for fiscal 2021 compared to $880 thousand for fiscal 2020. Impairment of long-lived assets and other lease charges for Company-owned restaurants decreased to $21 thousand in fiscal 2021 compared to $717 thousand in fiscal 2020 primarily due to a reduction in lease charges for closed stores.

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. Bad debt expense increased by $68 thousand to $121 thousand in fiscal 2017 impairment charges2021 compared to $53 thousand in fiscal 2020 primarily related to $4.7 milliondomestic accounts receivable.

Interest Expense

Interest expense decreased $3 thousand for fiscal 2021 to $92 thousand compared to $95 thousand in carrying value of Company-owned restaurantsthe prior year.

Amortization and $1.2 millionDepreciation Expense

Amortization and depreciation expense decreased $19 thousand to $167 thousand in other lease termination expenses for undeveloped, closed and transferred restaurant sites. These impairment charges arosefiscal 2021 compared to $186 thousand in fiscal 2020 primarily as a result of the decision to close 12 underperforming Pie Five restaurants and one underperforming Pizza Inn restaurant and to abandon previously executed leases for seven locations no longer deemed desirable for future restaurant development.

Provision for Bad Debt

Bad debt provision related to accounts receivable from franchisees increased to $0.3 million in fiscal 2017 compared to $0.1 million in the prior year. The Company believes that this provision and related allowance for doubtful accounts adequately reserves for outstanding receivables due from franchisees whose restaurants closed and for outstanding receivables due from continuing franchisees. For restaurants that are anticipated to close or are exhibiting signslower amortization of financial distress, credit terms are typically restricted, weekly food orders are required to be paid prior to delivery and royalty and advertising fees are collected as add-ons to the delivered price of weekly food orders.

Interest Expense

Interest expense increased for the fiscal year ended June 25, 2017 to $0.1 million, compared to a negligible amount in the prior year due to short-term borrowing of $1.0 million during the second quarter of fiscal 2017 and issuance of $3.0 million in senior convertible notes in the third quarter of fiscal 2017.

software.


Provision for Income Tax


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 fiscal year 2017, the Company had a full valuation allowance against its net deferred tax assets. The valuation allowance was increased by $4.1 million in fiscal year 2017, increasing from $4.9 million at June 26, 2016 to $9.0 million at June 25, 2017.  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 athe valuation allowance, the Company consideredconsiders 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 wereare also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence, management determined that it was appropriateThe Company has continued to maintain a full valuation allowance against all offor the Company’s deferred tax assets.

Income tax expense of $0.1 million for fiscal 2017 represents state taxes. year ended June 27, 2021.


At the end of tax year ended June 25, 2017,27, 2021, the Company had net operating loss carryforwards totaling $13.6$23.6 million that are available to reduce future taxable income and will begin to expire in 2032.

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Under the Tax Cuts and Jobs Act, approximately $1.78 million of the loss carryforwards are limited to 80% and do not expire.


Discontinued Operations

Discontinued operations

As of June 27, 2021, tax years remained open to examination from June 24, 2012, by the federal and state tax authorities, for three or four years from the tax year in which net operating losses or tax credits are utilized. The Company was not subject to any open income tax examinations by any tax authority as of June 27, 2021.

There are no material uncertain tax positions. Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on the tax returns would be sustained upon examination.

On March 27, 2020, President Trump signed into law the CARES Act. The legislation enacts various measures to assist companies affected by the COVID-19 pandemic. Key income tax-related provisions of the bill include temporary modifications to net operating loss utilization and carryback limitations, allowance of refundable alternative minimum tax credits, reduced limitation of charitable contributions, reduced limitations of business interest expense, and technical corrections to depreciation of qualified improvement property.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, an omnibus spending bill that includes income/loss froman array of COVID-related tax relief for individuals and businesses.  The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the CARES Act.  The Act also extends a Pizza Inn Company-owned restaurantnumber of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022, which are currently deductible at 50% for years ending December 31, 2020. The Company determined that closed in fiscal 2017 and a leased building associated with a Company-owned Pizza Inn restaurant closed in a prior year.

income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the year ended June 27, 2021.


Liquidity and Capital Resources

Sources and Uses of Funds


Our primary sources of liquidity are cash flows from operating activities, loan proceeds, and proceeds from the sale of securities.


Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred tax assets,taxes, share based compensation, and changes in working capital.  Cash usedprovided by operations was $5.5$1.5 million in fiscal 20172021 compared to cash providedused in operations of $1.9$0.4 million in fiscal year 2016.

2020. The increase in operating cash flow was primarily attributable to an increase in net income and the decrease in deferred income tax.


Cash flows from investing activities reflect net proceeds from sale of assets and capital expenditures for the purchase of Company assets. Cash used by investing activities was $0.2 million in fiscal 2021 compared to cash provided by investing activities duringof $0.1 million in fiscal 2017 of $0.4 million was primarily attributable to sales of assets of closed Company-owned Pie Five restaurants partially offset by capital expenditures for a new Pie Five Unit, computers and other miscellaneous assets. This compares to cash used by investing activities of $7.7 million during the fiscal year ended June 26, 2016 primarily attributable to Company-owned Pie Five restaurants that opened during the period.

2020.


Cash flows from financing activities generally reflect changes in the Company'sCompany’s borrowings and stocksecurities activity during the period.  Net cash provided by financing activities was $4.7$3.9 million and $0.9$1.0 million for the fiscal years ended June 25, 201727, 2021 and  June 26, 2016, respectively, which reflected28, 2020, respectively.  Cash flows from financing activities for fiscal 2021 were primarily the result of proceeds sales of stock in an at-the-market offering. Cash flows from financing activities for fiscal 2020 were primarily the result of proceeds from issuance of convertible senior notes, stock optionsa government-sponsored loan program and short-term borrowings in the current year versus proceeds from the salesales of stock in the prior year.

at-the-market offering.


We expect cash flow from operations during fiscal 2022 to continue to be negatively impacted by the COVID-19 pandemic. However, management believes the cash on hand combined with cash from operations will be sufficient to fund operations for the next 12 months.

PPP Loan

On April 13, 2020, the Company received the proceeds from a loan in the amount of $0.7 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A. (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The PPP Loan was unsecured by the Company and was guaranteed by the SBA. We applied for and received a forgiveness decision in the fourth quarter of fiscal 2021, such that all of the PPP Loan was forgiven at that time.

ATM Offerings

Offering


On May 20, 2013,December 5, 2017, the Company entered into an At-the-MarketAt Market Issuance Sales Agreement with MLV & Co. LLCB. Riley FBR, Inc. (“MLV”B. Riley FBR”) pursuant to which the Company couldmay offer and sell shares of its common stock having an aggregate offering price of up to $3,000,000$5.0 million from time to time through MLV,B. Riley FBR acting as agent (the “2013“2017 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 gross 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 20142017 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.November 6, 2017. Through June 25, 2017,27, 2021, the Company had sold an aggregate of 825,7633,064,342 shares in the 20142017 ATM Offering, realizing aggregate gross proceeds of $8.1$4.4 million. No sales were made under the 2014The 2017 ATM Offering during fiscal 2017.

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expired on November 6, 2020.


Short Term Loan

On December 22, 2016, the Company obtained a $1.0 million loan from its largest shareholder, Newcastle Partners, LP (“Newcastle”), evidenced by a Promissory Note. The loan bears interest at 10% per annum and was originally due and payable on April 30, 2017. On May 8, 2017, the Company executed an Extended and Restated Promissory Note in favor of Newcastle extending the due date of the short term loan until the earlier of September 1, 2017, or the Company’s receipt of at least $2.0 million in additional debt or equity capital. Newcastle is an affiliate of the Company’s Chairman, Mark E. Schwarz.

Convertible Notes


On March 3, 2017, the Company completed a registered shareholder rights offering of its 4% Convertible Senior Notes due 2022 (“Notes”).  Shareholders exercised subscription rights to purchase all 30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.


The Notes bear interest at the rate of 4% per annum on the principal or par value of $100 per note, payable annually in arrears on February 15 of each year, commencing February 15, 2018.  Interest is payable in cash or, at the Company’s discretion, in shares of Company common stock.  The Notes mature on February 15, 2022, at which time all principal and unpaid interest will be payable in cash or, at the Company’s discretion, in shares of Company common stock.  The Notes are secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries.


Noteholders may convert their notesNotes to common stock effective Februaryas of the 15 May 15, August 15 and November 15th day of each year,any calendar month, unless the Company sooner elects to redeem the notes.Notes.  The conversion price is $2.00 per share of common stock.  Accrued interest will be paid through the effective date of the conversion in cash or, at the Company’s sole discretion, in shares of Company common stock.

The Company determined that


During fiscal 2021, none of the Notes contained a beneficial conversion featurewere converted to common shares.  As of $0.1June 27, 2021, $1.6 million since the market pricein par value of the Company’s common stockNotes was higher than the effective conversion priceoutstanding, offset by $28 thousand of the notes when issued. The beneficial conversion featureunamortized debt issue costs and the issuance costs of the notes aggregated $0.2 million and were considered aunamortized debt discount and accreted into interest expense using the effective interest method over the debt maturity period.

Fiscal 2018 Equity Rights Offering

On September 13, 2017, the Company completed a registered shareholder rights offering of 3,571,429 shares of its common stock at a subscription price of $1.40 per share. The equity shareholder rights offering was fully subscribed resulting in gross offering proceeds to the Company of $5.0 million.

discounts.


Liquidity


We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily from cash on hand and operating cash flow and sales of securities.flow.  Based on budgeted and year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 20182022 fiscal year.


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.

21


Accounts receivable consist primarily of receivables generated from foodfranchise royalties and supply sales to franchisees and franchise royalties.supplier concessions. 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.

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 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 an assetthe assets compared to itstheir carrying value. If impairment is recognized,indicated, the carrying value of thean impaired asset is reduced to its fair value, based on discounted estimated future cash flows. During fiscal year 2017,2021, the Company tested its long-lived assets for impairment and recognized $21 thousand in pre-tax, non-cash impairment charges. The Company had lease charges of $5.9 million primarily related to closed units of $0.7 million partially offset by $0.2 million in sublease income.

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 carrying valueterm of 20 Pie Five Unitsthe related contract agreement. Royalties and lease termination expenses for seven undeveloped restaurant sites. During fiscal year 2016,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 Company tested its long-lived assets for impairment and recognized pre-tax, non-cash impairment charges of $1.7 million related to the carrying value of five Pie Five Units.

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 a 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 cumulative losses. Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance.

The Company has continued to maintain a full valuation allowance for the year ended June 27, 2021.


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 June 25, 201727, 2021 and June 26, 2016,28, 2020, 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.


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 but are disclosed below. Short-term lease costs exclude expenses related to leases with a lease term of one month or less.

Operating lease right of use assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to the present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Nature of Leases

The Company leases certain office space, restaurant space, and information technology equipment under non-cancelable leases to support its operations. A more detailed description of significant lease types is included below.

Office Agreements

The Company rents office space from third parties for its corporate location. Office agreements are typically structured with non-cancelable terms of one to 10 years. The Company has concluded that its office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreements 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 one 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 also 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 June 27, 2021, 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 one to five years. The Company has concluded that its information technology equipment commitments are operating leases.

Discount Rate

Leases typically do not provide an implicit rate. Accordingly, the Company is required to use incremental borrowing rate in determining the present value of lease payments based on the information available at 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 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 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, has 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 statement of operations 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 statement of operations in the period in which the obligation for those payments is incurred.

The components of total lease expense for the fiscal year ended June 27, 2021, the majority of which is included in general and administrative expense, are as follows (in thousands):

  
Fiscal Year Ended
June 27, 2021
 
Operating lease cost $705 
Sublease income  (200)
Total lease expense, net of sublease income $505 

Supplemental cash flow information related to operating leases is included in the table below (in thousands):

  
Fiscal Year Ended
June 27, 2021
 
Cash paid for amounts included in the measurement of lease liabilities $755 

Supplemental balance sheet information related to operating leases is included in the table below (in thousands):

  
Fiscal Year Ended
June 27, 2021
 
Operating lease right of use assets, net $2,085 
Operating lease liabilities, current  465 
Operating lease liabilities, net of current portion  1,911 

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

Fiscal Year Ended
June 27, 2021
Weighted average remaining lease term4.0 Years
Weighted average discount rate4.0%

Operating lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands):

  Operating Leases 
2022 $551 
2023  558 
2024  511 
2025  433 
2026  382 
Thereafter  191 
Total operating lease payments $2,626 
Less: imputed interest  (250)
Total operating lease liability $2,376 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not required for a smaller reporting company.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


See information set forth on Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9.22CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

ITEM 9A.CONTROLS AND PROCEDURES.


Evaluation of Disclosure Controls and Procedures


The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were effective in assuring that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.


Management Report on Internal Control over Financial Reporting


The Company’s management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934).  Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has conducted an evaluation of the effectiveness of its internal control over financial reporting. The Company’s management based it’sits evaluation on criteria set forth in the framework inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based upon that evaluation, management has concluded that our internal control over financial reporting was effective as of June 25, 2017. 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, its internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

There is no information required to be disclosed under this Item.

27, 2021.


PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.


The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.


ITEM 11. EXECUTIVE COMPENSATION.

ITEM 11.EXECUTIVE COMPENSATION.


The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.


The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

23


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.


The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.


The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.


PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


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:

3.1
3.1

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

  
3.2

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

  
4.1

Indenture for 4% Convertible Senior Notes due 2022 (filed as Exhibit 4.1 to Form S-3/A filed January 6, 2017 and incorporated herein by reference).

  
4.2

Pledge Agreement (filed as Exhibit 4.2 to Form S-3/A filed January 6, 2017 and incorporated herein by reference).

  
4.3

Extended and Restated Promissory NoteSupplemental Indenture Number 1 dated May 8,as of October 31, 2017, payable bybetween Rave Restaurant Group, Inc. to Newcastle Partners, LP.and Securities Transfer Corporation (filed as Exhibit 4.1 to form 10-Q for fiscal quarter ended March 26,Form 8-K filed November 9, 2017 and incorporated herein by reference).

  
10.1
4.4
2005 Non-Employee Directors Stock Award PlanDescription of the Company and form of Stock Option Award Agreement (filed as Exhibit 10.25 to Form 10-K for the fiscal year ended June 26, 2005 and incorporated herein by reference).*Registrant’s Securities.
  
10.2

2005 Employee Incentive Stock Option Award Plan of the Company and form of Stock Option Award Agreement (filed as Exhibit 10.26 to Form 10-K for the fiscal year ended June 26, 2005 and incorporated herein by reference).*

10.3
10.1
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).*
  
10.2
10.4

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).*

  
10.5
10.3

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).*

24

  
10.6
10.4
Employment letterLease Agreement dated April 7, 2014,November 1, 2016, between the CompanyA&H Properties Partnership and Timothy E. MullanyRave Restaurant Group, Inc. (filed as Exhibit 10.110.4 to Form 8-K filed April10-K for the year ended June 30, 2014,2019 and incorporated herein by reference).*
  
10.5
First Amendment to Lease and Expansion dated July 1, 2017, 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).*
  
10.6
Second Amendment to Lease Agreement effective June 1, 2020, between A&H Properties Partnership and Rave Restaurant Group, Inc.
  
10.7
At Market Issuance Sales Agreement between the Company and B. Riley FBR, Inc. (filed as Exhibit 1.01 to Form 8-K filed December 5, 2017).*
  
10.7
10.8

Letter agreement dated January 6, 2017,October 18, 2019, between Rave Restaurant Group, Inc. and Scott CraneBrandon Solano (filed as Exhibit 10.1 to Form 8-K filed October 21, 2019 and incorporated herein by reference).*

10.9
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).*
10.10
Letter agreement dated December 16, 2019, between Rave Restaurant Group, Inc. and Clinton Fendley (filed as Exhibit 10.1 to Form 8-K filed January 12, 20177, 2020 and incorporated herein by reference).*

  

10.8

10.9 

21.1

10.11

At Market Issuance Sales AgreementNote, dated April 10, 2020, between the CompanyRave Restaurant Group, Inc. and MLV & Co. LLC dated October 1, 2014 (filed as Exhibit 1.1 to Form 8-K filed October 1, 2014, and incorporated herein by reference).

Advisory Services Agreement between the Company and NCM Services, Inc. dated February 20, 2014JPMorgan Chase Bank, N. A. (filed as Exhibit 10.1 to Form 8-K filed February 24, 2014,April 16, 2020 and incorporated herein by reference).*

List of Subsidiaries.

  
10.12
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).*

List of Subsidiaries.
  
Consent of Independent Registered Public Accounting Firm.
  
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 arrangement.agreement.

ITEM 16.FORM 10-K SUMMARY.

None.

22

SIGNATURES

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Companyregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 Rave Restaurant Group, Inc.
Date: September 20, 201721, 2021
By:/s/ Scott Crane       /s/ Brandon L. Solano
 Scott CraneBrandon L. Solano
 President and
Chief Executive Officer
(principal executive officer)
By:/s/ Timothy E. Mullany /s/ Clinton D. Fendley
Timothy E. Mullany
Clinton D. Fendley
Chief Financial Officer
(principal financial officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Name and Position Date 
/s/ Scott Crane      Brandon L. Solano
September 20, 2017
Scott Crane   

President and Chief Executive Officer

(Principal Executive Officer)

Brandon L. Solano		  
Chief Executive Officer
(principal executive officer)September 21, 2021
/s/ Clinton D. Fendley
Clinton D. Fendley
Chief Financial Officer
(principal financial officer)
September 21, 2021
 
    
/s/Timothy Mark E. MullanySchwarz
September 20, 2017
Timothy E. Mullany  

Chief Financial Officer

(Principal Financial and Accounting

Officer)

/s/Mark E. Schwarz

September 20, 2017 
Mark E. Schwarz   
Director and Chairman of the Board September 21, 2021 
    
/s/Ramon D. Phillips Robert B. Page
September 20, 2017
Ramon D. Phillips  
Director and Vice Chairman of the Board
/s/ Steven M. JohnsonSeptember 20, 2017
Steven M. Johnson
Director
/s/Robert B. PageSeptember 20, 2017 
Robert B. Page   
Director September 21, 2021 
    
/s/ William C. Hammett, Jr.
 September 20, 2017 
William C. Hammett, Jr.   
Director September 21, 2021 
    
/s/ Clinton J. Coleman
 September 20, 2017 
Clinton J. Coleman   
Director September 21, 2021 


24

RAVE RESTAURANT GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Description
Page No.
  
Report of Independent Registered Public Accounting Firm – Montgomery Coscia Greilich LLP
F-2
  
Consolidated Statements of Operations for the fiscal years ended June 25, 201727, 2021 and June 26, 2016.
28, 2020.F-3
  
Consolidated Balance Sheets at June 25, 201727, 2021 and June 26, 2016.
28, 2020.F-4
  
Consolidated Statements of Shareholders’ Equity for the fiscal years ended June 27, 2021 and June 28, 2020.
F-5
  
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended June 25, 2017 and June 26, 2016.F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 25, 201727, 2021 and June 26, 2016.
30, 2020.F-6
  
Supplemental Disclosures of Cash Flow Information for the fiscal years ended June 25, 201727, 2021 and June 26, 2016.
28, 2020.F-6
  
Notes to Consolidated Financial Statements.
F-7


F-1

Report of Independent Registered Public Accounting Firm


Board of Directors and Shareholders

Rave Restaurant Group, Inc.

The Colony, Texas


Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheetssheet of Rave Restaurant Group, Inc. (the “Company”) and subsidiaries as of June 25, 201727, 2021 and June 26, 2016 and28, 2020, the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, (deficit), and cash flows for the fiscal years then ended. ended, and the related notes (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 27, 2021 and June 28, 2020, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.

audit.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB.  Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included considerationAs part of our audit we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An

Our audit also includesincluded performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements.  Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements.  We believe that our audits provideaudit provides a reasonable basis for our opinion.

In our opinion,


Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.  The communication of the critical audit matter does not alter in all material respects,any way our opinion on the consolidated financial positionstatements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition — Refer to Note A to the Financial Statements

Critical Audit Matter Description

The Company has two primary sources of Rave Restaurant Group, Inc. asrevenues: restaurant sales and franchise revenues. Franchise revenues consist of June 25, 20171) franchise royalties, 2) supplier and June 26, 2016,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. Each of these sources of revenues have different contract types, lengths, terms, and conditions. As such, revenue recognition requires significant analysis and a high degree of auditor judgment.

How the results of its operations and cash flows for the fiscal years then ended, in conformity with accounting principles generally acceptedCritical Audit Matter Was Addressed in the United StatesAudit

Our principal audit procedures related to the Company’s revenue recognition included the following:

We obtained the detail of America.

/s/ Montgomery Coscia Greilich LLP

Plano, Texas

September 20, 2017 

all revenue transactions and performed the following procedures:

F-2oIdentified the Company’s various revenue streams and any differences in the processes, methods, and policies applicable to each revenue stream.


oReviewed the entity’s revenue recognition policies and evaluated whether following those policies comply with the requirements of ASC 606.

oObtained a listing of franchise revenue related contracts, agreements, and invoices during the year, sampled the detail, and tested revenues by examining and documenting supporting contracts, invoices, and other documentation to determine whether revenue was recognized at the proper amount.


oPerformed various cutoff procedures to ensure revenue was recognized in the proper period.


RAVE RESTAURANT GROUP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
        
        
     Fiscal Year Ended
     June 25, June 26,
     2017 2016
        
REVENUES:  $                  57,113  $                  59,953
        
COSTS AND EXPENSES:    
 Cost of sales                      50,252                      52,355
 General and administrative expenses                        7,710                        7,109
 Franchise expenses                        3,896                        3,636
 Pre-opening expenses                           162                           883
 Loss on sale of assets                           882                                -
 Impairment of long-lived assets and other lease charges (See Note A)                        5,877                        1,698
 Bad debt                           342                           101
 Interest expense                           106                               4
                          69,227                      65,786
        
LOSS FROM CONTINUING    
OPERATIONS BEFORE TAXES                    (12,114)                      (5,833)
        
 Income tax expense                             53                        2,654
        
LOSS FROM    
CONTINUING OPERATIONS                    (12,167)                      (8,487)
        
 Loss from discontinued operations, net of taxes                         (324)                         (399)
        
NET LOSS  $                (12,491)  $                  (8,886)
        
LOSS PER SHARE OF COMMON     
STOCK - BASIC:    
 Loss from continuing operations  $                    (1.15)  $                    (0.82)
 Loss from discontinued operations  $                    (0.03)  $                    (0.04)
 Net loss  $                    (1.18)  $                    (0.86)
        
LOSS PER SHARE OF COMMON    
STOCK - DILUTED:    
 Loss from continuing operations  $                    (1.15)  $                    (0.82)
 Loss from discontinued operations  $                    (0.03)  $                    (0.04)
 Net loss  $                    (1.18)  $                    (0.86)
        
Weighted average common    
 shares outstanding - basic 10,617 10,317
        
Weighted average common    
 shares outstanding - diluted 10,617 10,317
        
See accompanying Report of Independent Registered Public
Accounting Firm and Notes to Consolidated Financial Statements.

ArmaninoLLP
Dallas, Texas

We have served as the Company’s auditor since 2020.

September 21, 2021

F-2

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<BTB>
       June 25, June 26,
ASSETS  2017 2016
          
CURRENT ASSETS     
 Cash and cash equivalents $                  451$                  873
 Accounts receivable, less allowance for doubtful     
   accounts of $249 and $198, respectively                 2,761                2,780
 Notes receivable                    675                   167
 Inventories                      79                   197
 Income tax receivable                    194                   194
 Property held for sale                    671                        -
 Prepaid expenses and other                    295                   430
   Total current assets                 5,126                4,641
          
LONG-TERM ASSETS     
 Property, plant and equipment, net                 3,808              12,979
 Long-term notes receivable                    127                   382
 Deposits and other, net                    485                   503
   Total assets $               9,546$             18,505
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)     
CURRENT LIABILITIES     
 Accounts payable - trade $               4,165$               3,815
 Short-term debt                 1,000                        -
 Accrued expenses                 1,265                1,220
 Deferred rent                    101                   160
 Deferred revenues                    212                   304
   Total current liabilities                 6,743                5,499
          
LONG-TERM LIABILITIES     
 Convertible notes                 2,749                        -
 Deferred rent, net of current portion                    655                1,710
 Deferred revenues, net of current portion                 1,425                1,440
 Other long-term liabilities                      53                   453
   Total liabilities               11,625                9,102
          
COMMITMENTS AND CONTINGENCIES (See Notes F and J)     
          
SHAREHOLDERS' EQUITY (DEFICIT)     
 Common stock, $.01 par value; authorized 26,000,000     
  shares; issued 17,786,049 and 17,460,951 shares, respectively;     
  outstanding 10,666,649 and 10,341,551 shares, respectively                    178                   175
 Additional paid-in capital               26,784              25,778
 Retained earnings (accumulated deficit)               (4,405)                8,086
 Treasury stock at cost     
  7,119,400 shares             (24,636)            (24,636)
   Total shareholders' equity (deficit)               (2,079)                9,403
   Total liabilities and shareholders' equity (deficit) $               9,546$             18,505
<      
See accompanying Report of Independent Registered Public
Accounting Firm and Notes to Consolidated Financial Statements.

F-4

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands)
               
        Retained      
     AdditionalEarnings      
  Common Stock Paid-in (Accumulated Treasury Stock  
  Shares Amount Capital Deficit) Shares Amount Total
               
<S>              
               
               
BALANCE, JUNE 28, 2015             10,255  $               174  $         24,700  $         16,972              (7,119)  $       (24,636)  $         17,210
               
Stock compensation expense                         -                         -                    213                         -                         -                         -                    213
Stock options exercised                      28                         -                    102                         -                         -                         -                    102
Sale of stock                      59                        1                    763                         -                         -                         -                    764
Net loss                         -                         -                         -               (8,886)                         -                         -               (8,886)
               
BALANCE, JUNE 26, 2016             10,342  $               175  $         25,778  $           8,086              (7,119)  $       (24,636)  $           9,403
               
Stock compensation expense                         -                         -                      58                         -                         -                         -                      58
Stock options exercised                    315                        3                    803                         -                         -                         -                    806
Conversion of senior notes, net                     10                         -                    145                         -                         -                         -                    145
Net loss                         -                         -                         -             (12,491)                         -                         -             (12,491)
               
BALANCE, JUNE 25, 2017             10,667  $               178  $         26,784  $          (4,405)              (7,119)  $       (24,636)  $          (2,079)
               
               
               
               
               
               
               
               
               
               
See accompanying Report of Independent Registered Public
Accounting Firm and Notes to Consolidated Financial Statements.

F-5

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<BTB>
      Fiscal Year Ended
      June 25, June 26,
      2017 2016
         
CASH FLOWS FROM OPERATING ACTIVITIES:   
<S>     
 Net loss $    (12,491)  $     (8,886)
 Adjustments to reconcile net loss to cash   
     provided (used) by operating activities:   
  Impairment of fixed assets and other assets          4,773           1,698
  Stock compensation expense               58              213
  Deferred income taxes                  -           2,593
  Depreciation and amortization          2,456           2,722
  Loss on the sale of assets             882              432
  Provision for bad debt             342              101
 Changes in operating assets and liabilities:   
  Notes and accounts receivable            (576)              (44)
  Inventories             118              (17)
  Income tax receivable                  -              492
  Prepaid expenses, deposits and other, net             116              419
  Deferred revenue            (107)              195
  Accounts payable - trade             350              940
  Accrued expenses, deferred rent and other         (1,469)           1,088
     Cash provided (used) by operating activities         (5,548)           1,946
         
CASH FLOWS FROM INVESTING ACTIVITIES:   
         
 Proceeds from sale of assets             999              444
 Capital expenditures            (573)         (8,110)
  Cash provided (used) by investing activities             426         (7,666)
         
CASH FLOWS FROM FINANCING ACTIVITIES:   
         
 Net change in short-term debt          1,000                   -
 Proceeds from sale of stock                  -              764
 Proceeds from issuance of convertible notes          2,894                   -
 Proceeds from exercise of stock options             806              102
         
  Cash provided by financing activities          4,700              866
         
Net decrease in cash and cash equivalents            (422)         (4,854)
Cash and cash equivalents, beginning of year             873           5,727
Cash and cash equivalents, end of year $          451  $          873
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         
CASH PAID FOR:   
         
  Interest $            25  $              4
  Income taxes $            29  $               -
         
See accompanying Report of Independent Registered Public
Accounting Firm and Notes to Consolidated Financial Statements.

F-6

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
       
       
REVENUES: $8,593  $10,028 
         
COSTS AND EXPENSES:        
Cost of sales  264   439 
General and administrative expenses  4,710   5,503 
Franchise expenses  2,394   3,051 
Gain on sale of assets  (10)  (24)
Impairment of long-lived assets and other lease charges  21   880 
Bad debt expense  121   53 
Interest expense  92   95 
Depreciation and amortization expense  167   186 
Total costs and expenses  7,759   10,183 
         
OTHER INCOME:        
Gain on forgiveness of PPP loan  (657)  — 
Total other income  (657)  — 
         
INCOME (LOSS) BEFORE TAXES  1,491   (155)
Income tax (benefit) expense  (29)  4,078 
NET INCOME (LOSS) $1,520  $(4,233)
         
INCOME (LOSS) PER SHARE OF COMMON STOCK - BASIC: $0.09  $(0.28)
         
INCOME (LOSS) PER SHARE OF COMMON STOCK - DILUTED: $0.09  $(0.28)
         
Weighted average common shares outstanding - basic  17,307   15,144 
         
Weighted average common and potential dilutive common shares outstanding  18,105   15,144 

See accompanying Notes to Consolidated Financial Statements.

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

  
June 27,
2021
  
June 28,
2020
 
ASSETS      
       
CURRENT ASSETS      
Cash and cash equivalents $8,330  $2,969 
Restricted cash  —   234 
Accounts receivable, less allowance for bad debts of $47 and $269, respectively  911   965 
Notes receivable, current  901   546 
Deferred contract charges, current  35   44 
Prepaid expenses and other  196   174 
Total current assets  10,373   4,932 
         
LONG-TERM ASSETS        
Property, plant and equipment, net  445   366 
Operating lease right of use asset, net  2,085   3,567 
Intangible assets definite-lived, net  183   155 
Notes receivable, net of current portion  52   449 
Deferred contract charges, net of current portion  207   231 
Deposits and other  —   5 
Total assets $13,345  $9,705 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable - trade $644  $446 
Accounts payable - lease termination impairments  —   407 
Accrued expenses  924   775 
Other current liabilities  46   — 
Operating lease liability, current  465   632 
Short term loan, current  250   — 
Convertible notes short term, net of unamortized debt issuance costs and discounts  1,576   — 
Deferred revenues, current  626   254 
Total current liabilities  4,531   2,514 
         
LONG-TERM LIABILITIES        
Convertible notes, net of current portion  —   1,549 
PPP loan  —   657 
Operating lease liability, net of current portion  1,911   3,471 
Deferred revenues, net of current portion  1,170   960 
Other long-term liabilities  —   51 
Total liabilities  7,612   9,202 
         
COMMITMENTS AND CONTINGENCIES (SEE NOTE K)        
         
SHAREHOLDERS’ EQUITY        
Common stock, $.01 par value; authorized 26,000,000 shares; issued 25,090,058 and 22,550,376  shares, respectively; outstanding 18,004,904 and 15,465,222 shares, respectively  251   225 
Additional paid-in capital  37,215   33,531 
Accumulated deficit  (7,196)  (8,716)
Treasury stock at cost        
Shares in treasury: 7,085,154 and 7,085,154, respectively  (24,537)  (24,537)
Total shareholders’ equity  5,733   503 
         
Total liabilities and shareholders’ equity $13,345  $9,705 

See accompanying Notes to Consolidated Financial Statements.

RAVE RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)

  Common Stock  
Additional
Paid-in
  Accumulated  Treasury Stock    
  Shares  Amount  Capital  Deficit  Shares  Amount  Total 
                      
Balance, June 30, 2019  22,208  $222  $33,327  $(4,483)  (7,117) $(24,632) $4,434 
                             
Stock compensation expense  –   –   (104)  –   –   –   (104)
Conversion of senior notes, net  –   –   (31)  –   32   95   64 
Issuance of common stock  342   3   354   –   –   –   357 
Equity issue costs - ATM Offering  –   –   (15)  –   –   –   (15)
Net Income  –   –   –   (4,233)  –   –   (4,233)
Balance, June 28, 2020  22,550  $225  $33,531  $(8,716)  (7,085) $(24,537) $503 

 Common Stock  
Additional
Paid-in
  Accumulated  Treasury Stock    
 Shares  Amount  Capital  Deficit  Shares  Amount  Total 
Balance, June 28, 2020
 22,550  $225  $33,531  $(8,716)  (7,085) $(24,537) $503 
                             
Stock compensation expense
 –   –   80   –   –   –   80 
Issuance of common stock
 2,540   26   3,735   –   –   –   3,761 
Equity issue costs - ATM Offering
 –   –   (131)  –   –   –   (131)
Net Income
 –   –   –   1,520   –   –   1,520 
Balance, June 27, 2021
 25,090  $251  $37,215  $(7,196)  (7,085) $(24,537) $5,733 

See accompanying Notes to Consolidated Financial Statements.

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

  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
       
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income (loss) $1,520  $(4,233)
Adjustments to reconcile net income (loss) to cash used in operating activities:        
Impairment of long-lived assets and other lease charges  21   880 
Stock compensation expense  80   (104)
Depreciation and amortization  131   145 
Amortization of operating right of use assets  569   471 
Amortization of intangible assets definite-lived  36   41 
Amortization of debt issue costs  27   29 
Gain on the sale of assets  (10)  (24)
Provision for bad debt  7   53 
Bad debt on notes receivable  114   — 
Gain on forgiveness of PPP loan  (657)  — 
Deferred income tax  —   4,060 
Changes in operating assets and liabilities:        
Accounts receivable  47   132 
Notes receivable  (119)  104 
Deferred contract charges  33   (6)
Inventories  —   7 
Prepaid expenses and other  (22)  167 
Deposits and other  5   — 
Accounts payable - trade  198   46 
Accounts payable - lease termination impairments  (428)  (985)
Accrued expenses  149   (46)
Other current liabilities  46   — 
Operating lease liability  (793)  (494)
Deferred revenue  582   (581)
Other long-term liabilities  (51)  (22)
Cash provided by/(used in) operating activities  1,485   (360)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Payments received on notes receivable  47   123 
Proceeds from sale of assets  1   — 
Purchase of intangible assets definite-lived  (74)  — 
Purchase of property, plant and equipment  (212)  (56)
Cash provided by/(used in) investing activities  (238)  67 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from sale of stock  3,761   357 
Equity issuance costs - ATM offering  (131)  (15)
Proceeds from PPP loan  —   657 
Short term loan, current  250   — 
Cash provided by financing activities  3,880   999 
         
Net increase/(decrease) in cash, cash equivalents and restricted cash  5,127   706 
Cash, cash equivalents and restricted cash, beginning of period  3,203   2,497 
Cash, cash equivalents and restricted cash, end of period $8,330  $3,203 
         
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets        
Cash and cash equivalents $8,330  $2,969 
Restricted cash  —   234 
Total cash, cash equivalents and restricted cash $8,330  $3,203 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
        
         
CASH PAID FOR:        
Interest $64  $66 
Income taxes $23  $18 
         
Non-cash activities:        
Conversion of notes to common shares $—  $64 
Operating lease right of use assets at adoption $—  $4,150 
Operating lease liability at adoption $—  $4,894 
Gain on forgiveness of PPP loan $657  $— 

See accompanying Notes to Consolidated Financial Statements.

RAVE RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


Description of Business:


Rave Restaurant Group, Inc. and its subsidiaries (collectively referred to as the “Company”, or in the first person notations of “we”, “us” and “our”) operate and franchise pizza buffet, delivery/carry-out and express restaurants domestically and internationally under the trademark “Pizza Inn” and operate and franchise domestic fast casual restaurants under the trademarks “Pie Five Pizza Company” or “Pie Five”.  The Company also licenses pizza kiosks under the “Pizza Inn” trademark. We provide or facilitate the procurement and distribution of food, equipment and supplies to our domestic and international system of restaurants through our Norco Restaurant Services Company (“Norco”) division and through agreements with third party distributors.


As of June 25, 2017,27, 2021,  we owned and operated 13 Pie Five restaurants (“Pie Five Units”). As of that date, we also had 7133 franchised Pie Five Units, and 221156 franchised Pizza Inn restaurants.restaurants, and 11 licensed Pizza Inn Express, or PIE, kiosks (“PIE Units”).  The 161124 domestic franchised Pizza Inn restaurants were comprised of 9370 pizza buffet restaurants (“Buffet Units”), 1110 delivery/carry-out restaurants (“Delco Units”), and 5744 express restaurants (“Express Units”).  The 60As of June 27, 2021, there were 32 international franchised Pizza Inn restaurants were comprised of 12 Buffet Units, 40 Delco Units and eight Express Units.restaurants.  Domestic Pizza Inn restaurants and kiosks were located predominantly in the southern half of the United States, with Texas, Arkansas, North Carolina and Mississippi accounting for approximately 23%25%, 17%21%, 17%16% and 9%8%, respectively, of the total number of domestic restaurants.

units.


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.

Reclassifications:

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.


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.

Restricted cash of $0.2 million as of June 28, 2020 consisted of an interest-bearing money market account restricted pursuant to a letter of credit for an insurance claim dating back to the mid-1980’s. The $0.2 million in restricted cash was released during the third quarter of fiscal 2021.


Concentration of Credit Risk:


Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $250 thousand per institution. At June 25, 201727, 2021 and June 26, 2016 and at various times during28, 2020, the fiscal years then ended,Company had cash and cash equivalents werebalances in excess of Federal Depository Insurance Corporation insured limits.FDIC insurance coverage of approximately $8.0 million and $2.7 million, respectively. We do not believe we are exposed to any significant credit risk on cash and cash equivalents.


Notes receivable, which potentially subject the Company to concentrations of credit risk, consist primarily of promissory notes from franchise agreements and structured Company-financed sales of assets.  At June 27, 2021 and June 28, 2020, and at various times during the fiscal years then ended, the Company had concentrations of credit risk with five franchisees on notes receivables with both short and long term maturities.  As of June 27, 2021, the Company had six short term notes receivable with four franchisees and the Company had one note receivable with one franchisee totaling $1.0 million. The financed asset sales were executed with a weighted average interest rate of 0.0%. Principal payments are due monthly and mature from November 1, 2021 to December 1, 2023.

Inventories:


Inventory consists primarily of food, paper products and supplies stored in and used by Company restaurants and wasis 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.

F-7


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 was 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 the Impairment or Disposal of Long-Lived Assets,” requires that discontinued operations that meet certain criteria be reflected in the statement of operations after results of continuing operations as a net amount.  This guidance also requires that the operations of closed restaurants, including any impairment charges, be reclassified to discontinued operations for all periods presented.


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 includes income/loss from a restaurant that closed in fiscal 2017 and a leased building associated with a Company-owned restaurant closed in a prior year.


Property, Plant and Equipment:


Property, plant and equipment are stated at cost less accumulated depreciation and amortization.  Repairs and maintenance are charged to operations as incurred while major renewals and betterments are capitalized.  Upon the sale or disposition of a fixed asset, the asset and the related accumulated depreciation or amortization are removed from the accounts and the gain or loss is included in operations.  The Company capitalizes interest on borrowings during the active construction period of major capital projects.  Capitalized interest is added to the cost of the underlying asset and amortized over the estimated useful life of the asset.


Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets or, in the case of leasehold improvements, over the term of the lease including any reasonably assured renewal periods, if shorter.  The useful lives of the assets range from three to ten years.


Impairment of Long-Lived Asset and other Lease Charges:


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 an assetthe assets compared to itstheir carrying value. If impairment is recognized, the carrying value of thean impaired asset is reduced to its fair value, based on discounted estimated future cash flows. During fiscal year 2017 and 2016,2021, the Company tested its long-lived assets for impairment and recognized $21 thousand in pre-tax, non-cash impairment charges. The Company had lease charges of $5.9 million and $1.7 million, respectively, related to the carrying valueclosed units of multiple Pie Five and Pizza Inn units.

$0.7 million partially offset by $0.2 million in sublease income.


Accounts Receivable:


Accounts receivable consist primarily of receivables generated from food and supply sales and franchise royalties.  The Company records a provision for doubtful receivables to allow for any amounts that may be unrecoverable based upon an analysis of the Company'sCompany’s prior collection experience, customer creditworthiness and current economic trends.  After all attempts to collect a receivable have failed, the receivable is written off against the allowance.  Finance charges may be accrued at a rate of 18% per year, or up to the maximum amount allowed by law, on past due receivables.  The interest income recorded from finance charges is immaterial.

F-8


Notes Receivable:


Notes receivable primarily consist of promissory notes arising from franchisee agreements.agreements and structured Company-financed sales of assets.  The majority of amounts and terms are contained underevidenced by formal promissory notes and personal guarantee agreements.guarantees.  All notes allow for early payment without penalty.  Fixed principle and interestprincipal payments are due weekly or monthly. Interest income is recognized monthly.  Notes receivable mature at various dates through 20212023 and bear interest at rates that range from 0.0% to 7.0% (3.9%a weighted average rate of 0.0% at June 25, 2017).

27, 2021.


Management evaluates the creditworthiness of franchisees by considering credit history and sales to evaluate credit risk. Management determines interest rates based on credit risk of the underlining franchisee.  The Company monitors payment history to determine whether or not a loan should be placed on a nonaccrual status or impaired.

The Company charges off notes receivable based on an account-by-account analysis of the borrower’s current economic conditions, monthly payments history and historical loss experience. The allowance for doubtful notes receivable is netted within notes receivable. Notes receivable as of June 25, 2017 consisted of $0.7 million in current assets and $0.1 million in long-term assets. Notes receivable as of June 26, 2016 consisted of $0.2 million in current assets and $0.4 million in long-term assets.


The principal balance outstanding on the notes receivable and expected principal collections on notes receivable for the next fivethree years and thereafter were as follows as of June 25, 201727, 2021 (in thousands):

  Notes Notes
  Receivable,
Gross		 Receivable,
Net of Allowance
2018                           752                           675
2019                             66                               4
2020                             69                             69
2021                             54                             54
                            941                           802


  Notes Receivable 
2022 $901 
2023  52 
2024  – 
  $953 

Income Taxes:


Income taxes are accounted for using the asset and liability method pursuant to the authoritative guidance onAccounting for Income Taxes.  Deferred taxes are recognized for the tax consequences of "temporary differences"“temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement and carrying amounts and the tax bases of existing assets and liabilities.  The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date.  The Company recognizes future tax benefits to the extent that realization of such benefits is more likely than not.


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 fiscal year 2017, the Company had a full valuation allowance against its net deferred tax assets. The valuation allowance was increased by $4.1 million in fiscal year 2017, increasing from $4.9 million at June 26, 2016 to $9.0 million at June 25, 2017.  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 athe valuation allowance, the Company consideredconsiders 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 wereare also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence, management determined that it was appropriateThe Company has continued to maintain a full valuation allowance against all offor the Company’s deferred tax assets.

Income tax expense of $0.1 million for fiscal 2017 represented state taxes. year ended June 27, 2021.


At the end of tax year ended June 25, 2017,27, 2021, the Company had net operating loss carryforwards totaling $13.6$23.6 million that are available to reduce future taxable income and will begin to expire in 2032.

Under the Tax Cuts and Jobs Act, approximately $1.78 million of the loss carryforwards are limited to 80% and do not expire.

F-8

Pre-Opening Expense:

As of June 27, 2021, tax years remained open to examination from June 24, 2012, by the federal and state tax authorities, for three or four years from the tax year in which net operating losses or tax credits are utilized. The Company's pre-opening costsCompany was not subject to any open income tax examinations by any tax authority as of June 27, 2021.

There are expensedno material uncertain tax positions. Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on the tax returns would be sustained upon examination.

Under ASC 740, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. From time to time, the Company may be assessed interest and penalties by taxing authorities.  In those cases, the charges are recorded as income tax expense, as incurred, and generally include payroll and other direct costs associated with training new managers and employees prior to opening a new restaurant, rent and other unit operating expenses incurred prior to opening, and promotional costs associated within the opening.

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 ChairmanConsolidated Statements 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.

On December 22, 2016, the Company obtained a $1.0 million loan from its largest shareholder, Newcastle Partners, LP ("Newcastle"), evidenced by a promissory note. The loan bears interest at 10% per annum and was originally due and payable on April 30, 2017. On May 8, 2017, the Company renewed and extended the promissory note on the same terms until the earlier of September 1, 2017, or the Company’s receipt of at least $2.0 million in additional debt or equity capital. Newcastle is an affiliate of the Company's Chairman, Mark E. Schwarz.

Operations.


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 food and supply revenue when productsit satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are deliveredboth imposed on 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. Shipping and handling costs billed to customersconcurrent with a specific revenue-producing transaction, that are recognized as revenue and the associated costs are included in cost of sales.

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 agreementcollected by both the franchisee and the Company generally atfrom a customer, are excluded from revenue.


The following describes principal activities, separated by major product or service, from which the time theCompany generates its revenues:

Restaurant Sales

Revenue from restaurant sales is opened. Royalties are recognized as income when earned. For the fiscal years ended June 25, 2017 and June 26, 2016, 87.8% and 82.8%, respectively, of franchise revenue was comprised of recurring royalties.

We recognize restaurant sales when food and beverage products are sold.sold in Company-owned restaurants. The Company reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing authorities.

Stock Options:


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 can range from five to 20 years. Fees received for renewal periods are amortized over the life of the renewal period.

Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign master license agreements. Area development exclusivity fees are included in deferred revenue in the Accompanying Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement. Area development exclusivity fees that include rights to sub-franchise are amortized as revenue over the term of the contract.

Advertising fund contributions for 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 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. Pie Five marketing fund contributions are billed and collected weekly.

Supplier convention funds are deferred until the obligations of the agreement are met and the event takes place.

Rental income is income from our subleasing of some of our restaurant space to third parties.

Total revenues consist of the following (in thousands):

  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
       
Restaurant sales $—  $240 
Franchise royalties  3,689   3,697 
Supplier and distributor incentive revenues  3,482   3,906 
Franchise license fees  308   853 
Area development exclusivity fees and foreign master license fees  21   20 
Advertising funds contributions  705   799 
Supplier convention funds  177   278 
Rental income  200   195 
Other  11   40 
  $8,593  $10,028 

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.

The Company’s stock-based compensation plans are described more fully in Note H. Stock options under these plans are granted at exercise prices equal


Restricted stock units (“RSUs”) represent the right to receive shares of common stock upon the fair market valuesatisfaction of the Company’s stock at the dates of grant.

Generally those options vest ratably over various vesting periods.

F-10

Restricted Stock Units:

requirements, performance criteria and other terms and conditions. Compensation cost for RSUs is measured as an amount equal to the fair value of the restricted stock unitsRSUs 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.


Fair Value of Financial Instruments:


The carrying amounts of accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.

Advertising and Marketing Costs:

Advertising and marketing costs are expensed as incurred and totaled $0.8 million for fiscal year ended June 25, 2017 and $1.2 million for fiscal year ended June 26, 2016. Advertising and marketing costs are included in cost of sales and general and administrative expenses in the consolidated statements of operations.


Contingencies:


Provisions for legal settlements are accrued when payment is considered probable and the amount of loss is reasonably estimable in accordance with the authoritative guidance onAccounting for Contingencies.  If the best estimate of cost can only be identified within a range and no specific amount within that range can be determined more likely than any other amount within the range, and the loss is considered probable, the minimum of the range is accrued.  Legal and related professional services costs to defend litigation are expensed as incurred.


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.


Fiscal Year:


The Company'sCompany’s fiscal year ends on the last Sunday in June.  The fiscal year ended June 25, 201727, 2021 contained 52 weeks and the fiscal year ended June 26, 2016 both28, 2020 contained 52 weeks.


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NOTE B – PROPERTY, PLANT AND EQUIPMENT:

EQUIPMENT AND INTANGIBLE ASSETS:


Property, and plant and equipment consist of the following (in thousands):

<BTB>Estimated Useful June 25, June 26,
<S>Lives 2017 2016
      
Equipment, furniture and fixtures3 - 7 yrs$               4,791 $                9,697
Software5 yrs                1,143                   872
Leasehold improvements 10 yrs or lease term, if shorter                3,949              13,290
                  9,883              23,859
Less:  accumulated depreciation/amortization              (6,075)            (10,880)
  $               3,808 $              12,979



Estimated
Useful Lives
 
June 27
2021
  
June 28,
2020
 
        
Equipment, furniture and fixtures3 - 7 yrs $1,021  $808 
Software5 yrs  792   809 
Leasehold improvements10 yrs or lease term, if shorter  472   472 
    2,285   2,089 
Less:  accumulated depreciation/amortization   (1,840)  (1,723)
     $445  $366 

Depreciation and amortization expense was approximately $2.5 million$131 thousand and $2.7 million$145 thousand for the fiscal years ended June 25, 201727, 2021 and June 26, 2016,28, 2020, respectively.

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Intangible assets consist of the following (in thousands):

   
June 27,
2021
  
June 28,
2020
 

Estimated
Useful Lives
 
Acquisition
Cost
  
Accumulated
Amortization
  
Net
Value
  
Acquisition
Cost
  
Accumulated
Amortization
  
Net
Value
 
                    
Trademarks and tradenames10 years $278  $(209) $69  $278  $(181) $97 
Name change15 years  70   (30)  40   70   (25)  45 
Prototypes5 years  74   –   74   230   (217)  13 
     $422  $(239) $183  $578  $(423) $155 

Amortization expense for intangible assets was approximately $36 thousand and $41 thousand for the fiscal years ended June 27, 2021 and June 28, 2020, respectively.

NOTE C - ACCRUED EXPENSES:


Accrued expenses consist of the following (in thousands):

<BTB>  June 25, June 26,
<S>  2017 2016
Compensation  $                    836 $                    728
Other                     254                    447
Professional fees                     167                      37
Insurance loss reserves                         8                        8
      
   $                 1,265 $                 1,220


  
June 27,
2021
  
June 28,
2020
 
Compensation $764  $451 
Other  130   236 
Professional fees  30   80 
Insurance loss reserves  –   8 
  $924  $775 

NOTE D - CONVERTIBLE NOTES:


On March 3, 2017, the Company completed a registered shareholder rights offering of its 4% Convertible Senior Notes due 2022 (“Notes”).  Shareholders exercised subscription rights to purchase all 30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.


The Notes bear interest at the rate of 4% per annum on the principal or par value of $100 per note, payable annually in arrears on February 15 of each year, commencing February 15, 2018.  Interest is payable in cash or, at the Company’s discretion, in shares of Company common stock.  The Notes mature on February 15, 2022, at which time all principal and unpaid interest will be payable in cash or, at the Company’s discretion, in shares of Company common stock.  The Notes are secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries.


Noteholders may convert their notesNotes to common stock effective Februaryas of the 15 May 15, August 15 and November 15th day of each year,any calendar month, unless the Company sooner elects to redeem the notes.Notes.  The conversion price is $2.00 per share of common stock.  Accrued interest will be paid through the effective date of the conversion in cash or, at the Company’s sole discretion, in shares of Company common stock.

The Company determined that


During fiscal 2021, none of the Notes contained a beneficial conversion featurewere converted to common shares.  As of $0.1June 27, 2021, $1.6 million since the market price of the Company’s common stock was higher than the effective conversion priceNotes were outstanding, offset by $28 thousand of the notes when issued. The beneficial conversion featureunamortized debt issue costs and the issuance costs of the notes aggregated $0.2 million and were considered aunamortized debt discount and accreted into interest expense using the effective interest method over the debt maturity period.

discounts.


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NOTE E - PPP LOAN:

On April 13, 2020, the Company received the proceeds from a loan in the amount of $0.7 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A. (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The PPP Loan was unsecured by the Company and was guaranteed by the SBA. We applied for and received a forgiveness decision in the fourth quarter of fiscal 2021, such that all of the PPP Loan was forgiven at that time. (See, “Consolidated Statement of Operations.”)

NOTE F - INCOME TAXES:


Provision for income taxes from continuing operations consists of the following (in thousands):

  Fiscal Year Ended
<BTB> June 25, June 26,
<S> 2017 2016
Current - Federal $—    $—   
Current - Foreign  —     —   
Current - State  53   4 
Deferred - Federal  —     2,764 
Deferred - State  —     (114)
Provision for income taxes $53  $2,654 

F-12


Discontinued operations had no material impact on provision for income taxes for fiscal years ended June 25, 2017 and June 26, 2016.

  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
Current - Federal $—  $— 
Current - State  (29)  18 
Deferred - Federal  —   4,053 
Deferred - State  —   7 
Provision for income taxes $(29) $4,078 


The effective income tax rate varied from the statutory rate for the fiscal years ended June 25, 201727, 2021 and June 26, 201628, 2020 as reflected below (in thousands):

<BTB> June 25, June 26,
   2017 2016
Federal income taxes based on 34%    
 of pre-tax loss$              (4,119)$             (1,983)
State income tax, net of federal effect                      35                     30
Permanent adjustments                      24                     19
Valuation allowance                 4,019                4,757
Other                      94                 (169)
  $                     53$               2,654


  
June 27,
2021
  
June 28,
2020
 
Federal income taxes based on a statutory rate of 21% $313  $(33)
State income tax, net of federal effect  (23)  20 
Permanent adjustments  5   4 
PPP loan forgiveness  (138)  — 
Change in valuation allowance  (190)  4,081 
Other  4   6 
  $(29) $4,078 

The tax effects of temporary differences that give rise to the net deferred tax assets consisted of the following (in thousands):

<BTB> June 25, June 26,
   2017 2016
      
<S>    
Current    
 Reserve for bad debt$                    89 $                     70
 Deferred fees                     27                   105
 Other reserves and accruals                1,323                1,246
                  1,439                1,421
Non Current    
 Credit carryforwards                   199                   747
 Net operating loss carryforwards                4,799                   197
 Depreciable assets                2,585                2,526
      
Total gross deferred tax asset                9,022                4,891
      
Valuation allowance              (9,022)              (4,891)
      
Net deferred tax asset$                       - $                        -


  
June 27,
2021
  
June 28,
2020
 
Reserve for bad debt $10  $61 
Deferred fees  34   — 
Other reserves and accruals  542   568 
Operating lease liabilities  525   937 
Credit carryforwards  197   171 
Net operating loss carryforwards  5,563   5,371 
Depreciable assets  —   306 
Total gross deferred tax asset  6,871   7,414 
Valuation allowance  (6,307)  (6,515)
Total deferred tax asset $564  $899 
         
Right-of-use asset  (461)  (815)
Other deferred tax liabilities  (103)  (84)
Total deferred tax liabilities $(564) $(899)
         
Net deferred tax asset $—  $— 

For the year ended June 27, 2021, the Company recorded an income tax benefit of $29 thousand including federal deferred tax expense of zero and current state tax benefit of $29 thousand. At the end of tax year ended June 25, 2017,27, 2021, the Company had net operating loss carryforwards totaling $13.6$23.6 million that are available to reduce future taxable income and will begin to expire in 2032.

Under the Tax Cuts and Jobs Act, approximately $1.78 million of the loss carryforwards are limited to 80% and do not expire.


F-12
As of June 27, 2021, tax years remained open to examination from June 24, 2012, by the federal and state tax authorities, for three or four years from the tax year in which net operating losses or tax credits are utilized. The Company was not subject to any open income tax examinations by any tax authority as of June 27, 2021.

The Company continually reviews the reliabilityrealizability 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 fiscal 2016, the Company recorded a $4.9 million valuation allowing against its net deferred tax assets. The valuation allowance was increased by $4.1 million in fiscal 2017 to $9.0 million as of June 25, 2017. 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.

F-13

 In assessing the need for athe valuation allowance, the Company consideredconsiders both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such an assessment, more weight was given to the evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income wereare also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence, management determined thatThe Company has continued to maintain a full valuation allowance againstfor the year ended June 27, 2021.


There are no material uncertain tax positions. Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on the tax returns would be sustained upon examination.

On March 27, 2020, President Trump signed into law the CARES Act. The legislation enacts various measures to assist companies affected by the COVID-19 pandemic. Key income tax-related provisions of the Company’s deferredbill include temporary modifications to net operating loss utilization and carryback limitations, allowance of refundable alternative minimum tax assets was appropriate.

credits, reduced limitation of charitable contributions, reduced limitations of business interest expense, and technical corrections to depreciation of qualified improvement property.


On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, an omnibus spending bill that includes an array of COVID-related tax relief for individuals and businesses.  The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the CARES Act.  The Act also extends a number of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022, which are currently deductible at 50% for years ending December 31, 2020. The Company determined that income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the year ended June 27, 2021.

NOTE FG - LEASES:


The Company leases its 19,576 square foot corporate office facility with average annual lease payments of approximately $18.00 per square foot.  This lease began on January 2, 2017 and has a ten-year term. The Company amended its lease agreement in June 2020 and deferred one-half of the monthly base rent for the period from June 2020 through May 2021.

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 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 but are disclosed below. Short-term lease costs exclude expenses related to leases with a lease term of one month or less.

Operating lease right of use assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to the present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Nature of Leases

The Company leases certain office space, restaurant space, and information technology equipment under non-cancelable leases to support its operations. A more detailed description of significant lease types is included below.

Office Agreements

The Company rents office space from third parties for its corporate location. Office agreements are typically structured with non-cancelable terms of one to 10 years. The Company has concluded that its office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreements subsequent to the primary term.

F-13
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 one 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 also 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 June 27, 2021, 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 one to five years. The Company has concluded that its information technology equipment commitments are operating leases.

Discount Rate

Leases typically do not provide an implicit interest rate. Accordingly, the Company is required to use its incremental borrowing rate in determining the present value of lease payments based on the information available at the lease commencement date. The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The Company uses the implicit rate in the limited circumstances in which that rate is readily determinable.

Lease Guarantees

The Company has guaranteed the financial responsibilities of certain franchised store leases. These guaranteed leases are not considered operating leases because the Company does not have the right to control the underlying asset. If the franchisee abandons the lease and fails to meet the lease’s financial obligations, the lessor may assign the lease to the Company for the remainder of the term. If the Company does not expect to assign the abandoned lease to a new franchisee within 12 months, the lease will be considered an operating lease and a right-of-use asset and 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, has 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 statement of operations 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 statement of operations in the period in which the obligation for those payments is incurred.

The components of total lease expense for the fiscal year ended June 27, 2021, the majority of which is included in general and administrative expense in the accompanying consolidated statement of operations, are as follows (in thousands):

  
Fiscal Year Ended
June 27, 2021
 
Operating lease cost $705 
Sublease income  (200)
Total lease expense, net of sublease income $505 

Supplemental cash flow information related to operating leases is included in the table below (in thousands):

  
Fiscal Year Ended
June 27, 2021
 
Cash paid for amounts included in the measurement of lease liabilities $755 

F-14
Supplemental balance sheet information related to operating leases is included in the table below (in thousands):

  
Fiscal Year Ended
June 27, 2021
 
Operating lease right of use assets, net $2,085 
Operating lease liabilities, current  465 
Operating lease liabilities, net of current portion  1,911 

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

Fiscal Year Ended
June 27, 2021
Weighted average remaining lease term4.0 Years
Weighted average discount rate4.0%

Operating lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands):

  Operating Leases 
2022 $551 
2023  558 
2024  511 
2025  433 
2026  382 
Thereafter  191 
Total operating lease payments $2,626 
Less: imputed interest $(250)
Total operating lease liability $2,376 

Premises occupied by Company-owned restaurants arewere leased for initial terms of five to ten years, and each has multiple renewal terms. Certain lease agreements contain either a provision requiring additional rent if sales exceed specified amounts or an escalation clause based upon a predetermined multiple.

The Company leases its 38,130 square foot corporate office facility with average annual lease payments of approximately $9.00 per square foot.  This lease began on January 2, 2017 and has a ten year term. 


Future minimum rental payments under active non-cancelable leases with initial or remaining terms of one year or more at June 25, 201727, 2021 were as follows (in thousands):

<BTB> Operating
<S> Leases
   
2018$2,485
2019 2,246
2020 2,272
2021 2,347
2022 2,258
Thereafter 6,381
 $17,989


  Operating Leases 
2022 $1,168 
2023  1,056 
2024  844 
2025  685 
2026  490 
Thereafter  364 
  $4,607 

Future minimum sublease rental income under active non-cancelable leases with initial or remaining terms of one year or more at June 25, 201727, 2021 were as follows (in thousands):

<BTB> Sublease Rental
<S> Income
   
2018$187
2019 162
2020 168
2021 174
2022 175
Thereafter 350
 $1,216


  Sublease Rental Income 
2022 $175 
2023  177 
2024  128 
2025  53 
  $533 

Rental expense consisted of the following (in thousands):

<TABLE><CAPTION> Fiscal Year Ended
  June 25, June 26,
  2017 2016
<S>    
Minimum rentals$               1,878$               3,090
Sublease rentals                 (129)                 (257)
 $               1,749$               2,833


  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
Minimum rentals $705  $676 
Sublease rentals  (200)  (168)
  $505  $508 

F-15
F-14Index

NOTE GH - EMPLOYEE BENEFITS:


The Company has a tax advantaged savings plan that is designed to meet the requirements of Section 401(k) of the Internal Revenue Code (the “Code”).  The current plan is a modified continuation of a similar savings plan established by the Company in 1985.  Employees who have completed sixthree months of service and are at least 21 years of age are eligible to participate in the plan. The plan provides that participating employees may elect to have between 1% and 15% of their compensation deferred and contributed to the plan subject to certain IRS limitations.  Effective June 27, 2005, the Company has a discretionary matching contribution. For calendar years 2015 and 2016, the Company contributed on behalf of each participating employee an amount equal to 50% of the employee’s contributions up to 4% of compensation. Separate accounts are maintained with respect to contributions made on behalf of each participating employee. Employer matching contributions and earnings thereon are invested in the same investments as each participant’s employee deferral.  The plan is subject to the provisions of the Employee Retirement Income Security Act, as amended, and is a profit sharingprofit-sharing plan as defined in Section 401(k) of the Code.


For the fiscal yearsyear ended June 25, 2017 and June 26, 2016,27, 2021, total matching contributions to the tax advantaged savings plan by the Company on behalf of participating employees were approximately $40,000 and $53,000, respectively.

$24 thousand. For the fiscal year ended June 28, 2020, no matching contributions were made to the tax advantaged savings plan by the Company.


NOTE HI - STOCK BASED COMPENSATION PLANS:


In June 2005, the 2005 Employee Incentive Stock Option Award Plan (the “2005 Employee Plan”) was approved by the Company’s shareholders with a plan effective date of June 23, 2005.  Under the 2005 Employee Plan, officers and employees of the Company were eligible to receive options to purchase shares of the Company’s common stock.  Options were granted at market value of the stock on the date of grant, were subject to various vesting and exercise periods as determined by the Compensation Committee of the board of directors and could be designated as non-qualified or incentive stock options.  A total of 1,000,000 shares of common stock were authorized for issuance under the 2005 Employee Plan.  The 2005 Employee Plan expired by its terms on June 23, 2015.


The shareholders also approved the 2005 Non-Employee Directors Stock Award Plan (the “2005 Directors Plan”) in June 2005, to be effective as of June 23, 2005.  Directors not employed by the Company were eligible to receive stock options under the 2005 Directors Plan.  Options for common stock equal to twice the number of shares of common stock acquired during the previous fiscal year, up to 40,000 shares per year, were automatically granted to each non-employee director on the first day of each fiscal year.  Options were granted at market value of the stock on the first day of each fiscal year, with vesting periods beginning at a minimum of six months and with exercise periods up to ten years.  A total of 650,000 shares of Company common stock were authorized for issuance pursuant to the 2005 Directors Plan.  The 2005 Directors Plan expired by its terms on June 23, 2015.


The 2015 Long Term Incentive Plan (the “2015 LTIP”) was approved by the Company’s shareholders on November 18, 2014 and became effective June 1, 2015.  Officers, employees and non-employee directors of the Company are eligible to receive awards under the 2015 LTIP.  A total of 1,200,000 shares of common stock are authorized for issuance under the 2015 LTIP.  Awards authorized under the 2015 LTIP include incentive stock options, non-qualified stock options, restricted shares, restricted stock units and rights (either with or without accompanying options).  The 2015 LTIP provides for options to be granted at market value of the stock on the date of grant and have exercise periods determined by the Compensation Committee of the board of directors.  The Compensation Committee may also determine the vesting periods, performance criteria and other terms and conditions of all awards under the 2015 LTIP.  The Compensation Committee has adopted resolutions under the 2015 LTIP automatically granting to each non-employee director on the first day of each fiscal year options to purchase twice the number of shares of common stock acquired during the previous fiscal year, up to a maximum of 40,000 shares.  Such options are exercisable at the market value of the stock on the first day of the fiscal year, vest six months from the date of grant and expire 10 years from the date of grant.


Share based compensation expense is included in general and administrative expense in the accompanying consolidated statement of operations.


F-16
F-15Index

Stock Options:


A summary of stock option transactions under all of the Company’s stock option plans and information about fixed-price stock options is as follows:

<BTB>Fiscal Year Ended 
<BTB>       June 25, 2017       June 26, 2016
  Weighted-  Weighted- 
  Average  Average 
  Exercise  Exercise 
 SharesPrice SharesPrice 
<S>      
Outstanding at beginning      
of year           847,556 $         3.77      871,798 $           3.51 
       
Granted             50,000 $         3.95        42,786 $         10.92 
Exercised         (315,000) $         2.56      (27,916) $           3.65 
Forfeited/Canceled/Expired         (104,500) $         5.67      (39,112) $           5.67 
       
Outstanding at end of year           478,056 $         4.16      847,556 $           3.77 
       
Exercisable at end of year           388,056 $         3.54      558,620 $           2.71 
       
Weighted-average fair value of      
options granted during the year  $         1.11   $           4.24 
       
Total intrinsic value of       
options exercised  $   806,400   $     102,010 

At June 25, 2017, there was no


  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
  Shares  Shares 
Outstanding at beginning of year  206,750   216,550 
         
Granted  –   – 
Exercised  –   – 
Forfeited/Canceled/Expired  (40,000)  (9,800)
         
Outstanding at end of period  166,750   206,750 
         
Exercisable at end of period  166,750   206,750 

  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
  
Weighted-
Average
Exercise
Price
  
Weighted-
Average
Exercise
Price
 
Outstanding at beginning of year $4.96  $4.82 
         
Granted  –   – 
Exercised  –   – 
Forfeited/Canceled/Expired  2.71   1.87 
         
Outstanding at end of period $5.49  $4.96 
         
Exercisable at end of year $5.49  $4.96 

The intrinsic value of options outstanding.

F-16
outstanding at June 27, 2021 was zero.



The following table provides information on options outstanding and options exercisable as of June 25, 2017:

  Options Outstanding Options Exercisable
    Weighted-      
    Average      
  Options Remaining Weighted- Options Weighted-
Range of Outstanding Contractual Average Exercisable Average
Exercise Prices at June 25, 2017 Life (Years) Exercise Price at June 25, 2017 Exercise Price
<S>          
$1.55 - 1.95 81,306 2.1 $1.90                  81,306 $1.90
$1.96 - 2.35 90,000 1.0 $2.32                  90,000 $2.32
$2.36 - 2.75 40,000 4.0 $2.71                  40,000 $2.71
$2.76 - 3.30 55,000 5.0 $3.11                  55,000 $3.11
$3.31 - 3.95 50,000 18.5 $3.95                            - $0.00
$5.51 - 5.74 8,664 6.0 $5.74                    8,664 $5.74
$5.95 - 6.25 128,800 6.9 $6.07                  88,800 $4.07
$6.26 - 13.11 24,286 8.0 $13.11                  24,286 $13.11
  478,056 5.8 $4.16                388,056 $3.54

27, 2021:


   Options Outstanding  Options Exercisable 
Range of
Exercise Prices
  
Options
Outstanding
at June 27,2021
  
Weighted-Average
Remaining
Contractual
Life (Years)
  
Weighted-
Average
Exercise Price
  
Shares
Exercisable
at June 27, 2021
  
Weighted-
Average
Exercise Price
 
                 
$2.76 - 3.30   55,000   1.0  $3.11   55,000  $3.11 
$3.31 - 3.95   50,000   5.0  $3.95   50,000  $3.95 
$5.51 - 5.74   8,664   2.0  $5.74   8,664  $5.74 
$5.95 - 6.25   28,800   3.0  $6.23   28,800  $6.23 
$6.26 - 13.11   24,286   4.0  $13.11   24,286  $13.11 
     166,750   3.0  $5.49   166,750  $5.49 

We determine fair value following the authoritative guidance as follows:


Valuation and Amortization Method.  We estimate the fair value of share-based awards granted using the Black-Scholes option valuation model.  We amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.


F-17
Expected Life.  The expected life of awards granted represents the period of time that they are expected to be outstanding.  Unless a life is specifically stated, we determine the expected life using the “simplified method” in accordance with Staff Accounting Bulletin No. 110 since we do not have sufficient historical share option exercise experience.


Expected Volatility.  Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock.


Risk-Free Interest Rate.  We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.


Expected Dividend Yield.We have not paid any cash dividends on our common stock in the last ten years and we do not anticipate paying any cash dividends in the foreseeable future.  Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model.


Expected Forfeitures.  We use historical data to estimate pre-vesting option forfeitures.  We record stock-based compensation only for those awards that are expected to vest.

F-17


The following weighted average assumptions were used for options granted in the last two fiscal years:

  June 25, June 26,
 Fiscal Year Ended  2017 2016
     
 Expected life (in years)               5.5              5.7
 Expected volatility  34.6% 36.0%
 Risk-free interest rate  1.1% 1.6%
 Expected forfeiture rate  61.8% 61.8%

At June 25, 2017,27, 2021, all stock options that the Company had unvested options to purchase 90,000 shares with a weighted average grant date fair value of $6.77. The total remaining unrecognized compensation cost related to unvestedgranted were vested. No stock options amounted to approximately $0.2 million at June 25, 2017. The weighted average remaining requisite service period of the unvested awards was 4.6 months. Stock compensation expense related to stock options of $58,000 and $213,000 was recognized in either fiscal years 2017 and 2016, respectively.

2021 or 2020.


Restricted Stock Units:


Restricted stock units awarded under the 2015 LTIP represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. During fiscal 2017,2020, there were no grants of performance-based restricted stock units. During fiscal 2021, an aggregate of 536,310545,600 performance-based restricted stock units were granted to certain employees.


The restricted stock units granted to each recipient are allocated among performance criteria pertaining to various aspects of the Company’s business, as well as its overall operations, measured based on itsthe second fiscal year ending June 24, 2019.following the date of grant.  Achievement of the various performance criteria entitles the recipient to receive shares of common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted.  Grantees of restricted stock units do not have any rights of a stockholder, and do not participate in any distributions on our common stock, until the award fully vests upon satisfaction of the vesting schedule, performance criteria and other conditions set forth in their award agreement.  Therefore, unvested restricted stock units are not considered participating securities under ASC 260, “Earnings Per Share,” and are not included in the calculation of basic or diluted earnings per share.


Compensation cost is measured as an amount equal to the fair value of the restricted stock units 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. The grant date fair value of the restricted stock units granted in fiscal 2017 is $5.99 per unit. The Company benefited from a credit in compensation expense of $33 thousand which had no income tax impact due to a full valuation allowance.

F-18


A summary of the status of restricted stock units as of June 25, 201727, 2021 and June 26, 2016,28, 2020, and changes during the fiscal years then ended is presented below:

Number of Restricted Stock Units    
     
  June 25, June 26,
  2017 2016
Outstanding at beginning of year  79,620   —   
Granted during the year  536,310   100,190 
Forfeited during the year  (127,980)  (20,570)
Outstanding at end of year  487,950   79,620 
         
Vested at beginning of year  —     —   
Vested during the year  —     —   
Vested at end of year  —     —   
         
Unvested at end of year  487,950   79,620 


June 27,
2021
June 28,
2020
Unvested at beginning of year—155,106
Granted during the year545,600—
Vested during the year—(9,053)
Forfeited during the year—(146,053)
Unvested at end of year545,600—

NOTE IJ - SHAREHOLDERS’ EQUITY:


On April 22, 2009, the board of directors of the Company amended the stock repurchase plan first authorized on May 23, 2007, and previously amended on June 2, 2008, by increasing the aggregate number of shares of common stock the Company may repurchase under the plan to a total of 3,016,000 shares.  No shares were repurchased during fiscal 20172021 and, as of June 25, 2017,27, 2021, there were 848,425 shares available to repurchasebe repurchased under the plan.


F-18
On May 20, 2013,December 5, 2017, the Company entered into an At-the-MarketAt Market Issuance Sales Agreement with MLV & Co. LLCB. Riley FBR, Inc. (“MLV”B. Riley FBR”) 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 gross 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 initiallymay 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,B. Riley FBR acting as agent (the “2014“2017 ATM Offering”).  On February 13, 2015, the aggregate offering amount of the 2014 ATM Offering was increased to $10,000,000. The 20142017 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.November 6, 2017. Through June 25, 2017,27, 2021, the Company had sold an aggregate of 825,7633,064,342 shares in the 20142017 ATM Offering, realizing aggregate gross proceeds of $8.1$4.4 million. No sales were made under the 2014The 2017 ATM Offering during fiscal 2017.

expired on November 6, 2020.


The Company pays to MLVB. Riley FBR a fee equal to 3% of the gross sales price in addition to reimbursing certain costs.  ExpensesThe Company had $131 thousand in expenses associated with the 20132017 ATM Offering and 2014 ATM Offering were $0 and $21,000 in fiscal 2017 and fiscal 2016, respectively, which includes fees and expense reimbursement to MLV and legal and other offering expenses incurred by the Company.

F-19
2021.


NOTE JK - 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'sCompany’s annual results of operations or financial condition if decided in a manner that is unfavorable to us.

the Company.


On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus (COVID-19) as a pandemic, and the disease has 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, have severely disrupted our business operations.  Most of the domestic Pizza Inn buffet restaurants and Pie Five restaurants are in areas that were for varying periods subject to “shelter-in-place” and social distancing restrictions prohibiting in-store sales and, therefore, were limited to carry-out and/or delivery orders.  In some areas, these restrictions limited non-essential movement outside the home, which discouraged or even precluded carry-out orders.  In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and enhanced cleaning and disinfecting practices. Further, the COVID-19 pandemic has precipitated significant job losses and a national economic downturn that typically impacts the demand for restaurant food service.  Although most of our domestic restaurants have continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic.

The COVID-19 pandemic has resulted in 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 have correspondingly decreased supplier rebates and franchise royalties payable to the Company.  During the fourth quarter of fiscal 2020, we participated in a government-sponsored loan program. (See, “Note E--PPP Loan.”) We also temporarily furloughed certain employees and reduced base salary by 20% for all remaining employees for the fourth quarter of fiscal 2020, as well as reducing other expenses. While the Company will remain focused on controlling expenses, future results of operations are likely to be materially adversely impacted by the pandemic and its aftermath.

We expect that Buffet Units and Pie Five Units will continue to be subject to capacity restrictions for some time as social distancing protocols remain in place. Additionally, 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. We cannot predict how long the pandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent off-premises dining will continue, or if individuals will be comfortable returning to our Buffet Units and Pie Five Units following social distancing protocols. Any of these changes could materially adversely affect the Company’s future financial performance.  However, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

NOTE KL - EARNINGS PER SHARE:


The Company computes and presents earnings per share (“EPS”) in accordance with the authoritative guidance onEarnings Per Share.  Basic EPS excludes the effect of potentially dilutive securities while diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised, converted or resulted in the issuance of common stock that then shared in the earnings of the Company.


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).

 Fiscal Year Ended
 June 25, June 26,
  2017   2016 
Loss from continuing operations $     (12,167)  $     (8,487)
Discontinued operations             (324)            (399)
Net loss available to common stockholders $     (12,491)  $     (8,886)
    
BASIC:   
Weighted average common shares10,617 10,317
    
Loss from continuing operations per common share $         (1.15)  $       (0.82)
Discontinued operations per common share            (0.03)           (0.04)
Net loss per common share $         (1.18)  $       (0.86)
    
DILUTED:   
Weighted average common shares10,617 10,317
Stock options                 -                   -   
Weighted average common shares outstanding10,617 10,317
    
    
Loss from continuing operations per common share $         (1.15)  $       (0.82)
Discontinued operations per common share            (0.03)           (0.04)
Net loss per common share $         (1.18)  $       (0.86)


  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
Income/(loss) from continuing operations $1,520  $(4,233)
Interest saved on convertible notes at 4% $64  $65 
Adjusted net income/(loss) $1,584  $(4,168)
         
BASIC:        
Weighted average common shares  17,307   15,144 
         
Net income/(loss) per common share $0.09  $(0.28)
         
DILUTED:        
Weighted average common shares  17,307   15,144 
Convertible notes  798   — 
Dilutive stock options  —   — 
Weighted average common shares outstanding  18,105   15,144 
         
Income/(loss) from continuing operations per common share $0.09  $(0.28)

F-19
F-20Index

We had 166,750 and 206,750 shares of common stock potentially issuable upon exercise of employee stock options for years ended June 27, 2021 and June 28, 2020, respectively. The 166,750 and 206,750 shares of common stock were excluded from the weighted average number of shares outstanding on a diluted basis because they had an intrinsic value of zero and were anti-dilutive, respectively. These options expire at varying times from fiscal 2021 through fiscal 2026.


NOTE L–M– SEGMENT REPORTING:


The Company has twothree reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance onDisclosures about Segments of an Enterprise and Related Information:  (1) Pizza Inn Franchising, (2) Pie Five Franchising and Food and Supply Distribution, and (2) Company-owned(3) Company-Owned Restaurants.  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 twothree operating segments.  Other revenue consists of nonrecurring items.


The Pizza Inn and Pie Five Franchising segments establish franchisees, licensees and Food and Supply Distribution segment establishes franchisees and franchise territorial rights and sells and distributes proprietary and non-proprietary food and other items to franchisees.rights. Revenue for this segment is derived from the sale of distributed products and franchise royalties, franchise fees, and sale of area development and foreign master license rights.rights and incentive payments from third party suppliers and distributors. Assets for this segmentthese segments include equipment, furniture and fixtures.


The Company-owned RestaurantCompany-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.


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 sales and operating revenues, depreciation and amortization expense, income from continuing operations before taxes, capital expenditures and assets for the Company'sCompany’s reportable segments as of and for the fiscal years ended June 25, 201727, 2021 and June 26, 201628, 2020 (in thousands):

F-21


 <BTB>  Fiscal Year Ended
    June 25, June 26,
    2017 2016
 Net sales and operating revenues:     
 Franchising and food and supply distribution   $            41,880  $            40,324
 Company-owned restaurants (1)                 15,233                19,629
  Consolidated revenues   $            57,113  $            59,953
       
 Depreciation and amortization:     
 Franchising and food and supply distribution   $                   11  $                   23
 Company-owned restaurants (1)                   1,987                  2,458
  Combined                   1,998                  2,481
 Corporate administration and other                      458                     241
  Depreciation and amortization   $              2,456  $              2,722
       
 Loss from continuing operations before taxes     
 Franchising and food and supply distribution (2)   $              2,294  $              2,927
 Company-owned restaurants (1) (2)                  (3,797)                 (4,293)
  Combined                  (1,503)                 (1,366)
 Impairment of long-lived assets and other lease charges                  (5,877)                 (1,698)
 Corporate administration and other (2)                  (4,734)                 (2,769)
  Loss from continuing operations before taxes   $           (12,114)  $             (5,833)
       
 Capital Expenditures:     
 Franchising and food and supply distribution   $                      -  $                      -
 Company-owned restaurants                      337                  7,497
 Corporate administration                      236                     613
  Combined capital expenditures   $                 573  $              8,110
       
 Assets:     
 Franchising and food and supply distribution   $              3,326  $              3,187
 Company-owned restaurants                   3,346                12,817
 Corporate administration                   2,874                  2,501
  Combined assets   $              9,546  $            18,505
       
 (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.   

  Fiscal Year Ended 
  
June 27,
2021
  
June 28,
2020
 
Net sales and operating revenues:      
Pizza Inn Franchising $6,582  $6,662 
Pie Five Franchising  1,816   2,894 
Company-Owned Restaurants  –   240 
Corporate administration and other  195   232 
Consolidated revenues $8,593  $10,028 
         
Depreciation and amortization:        
Pizza Inn Franchising $–  $– 
Pie Five Franchising  –   – 
Company-Owned Restaurants  –   – 
Combined  –   – 
Corporate administration and other  167   186 
Depreciation and amortization $167  $186 
         
Income/(Loss) before taxes:        
Pizza Inn Franchising $5,205  $5,365 
Pie Five Franchising  799   1,140 
Company-Owned Restaurants  (292)  (1,006)
Combined  5,712   5,499 
Corporate administration and other  (4,221)  (5,654)
Income/(loss) before taxes $1,491  $(155)


The following table provides information on our foreign and domestic revenues:

       
 Geographic information (revenues):     
 United States   $            56,509  $            59,402
 Foreign countries                      604                     551
  Consolidated total   $            57,113  $            59,953

F-22


Geographic information (revenues):      
United States $8,373  $9,847 
Foreign countries  220   181 
Consolidated total $8,593  $10,028 

NOTE N - SUBSEQUENT EVENTS:

In preparation of its financial statements, the Company considered subsequent events through September 21, 2021 which was the date the Company’s financial statements were available to be issued.


F-20