þQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☑ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
oSeptember 26, 2021 or
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
________.
Missouri | 45-3189287 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer | |
Identification No.) |
(Zip Code)
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | RAVE | Nasdaq Capital Market |
☐
☐
Large accelerated filero Accelerated filero Non-accelerated filero Smaller reporting companyþ
Emerging growth companyo
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☑ | Smaller reporting company ☑ |
Emerging growth company ☐ |
☑o ☐ NoþFebruary 6, 2018, 14,896,208October 26, 2021, 18,004,904 shares of the issuer’s common stock were outstanding.2
PART I. FINANCIAL INFORMATION | |||
Item 1. | Financial Statements | Page | |
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6 | |||
7 | |||
Item 2. |
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Item 3. | 23 | ||
Item 4. | 23 |
PART II. OTHER INFORMATION
PART II. OTHER INFORMATION | |||
Item 1. | 24 | ||
Item 1A. | 24 | ||
Item 2. | 24 | ||
Item 3. | 24 | ||
Item 4. | 24 | ||
Item 5. | 24 | ||
Item 6. | 25 | ||
26 |
INCOMEOPERATIONS Three Months Ended Six Months Ended December 24, December 25, December 24, December 25, 2017 2016 2017 2016 REVENUES: $ 4,197 $ 6,780 $ 9,629 $ 14,246 COSTS AND EXPENSES: Cost of sales 1,055 3,858 3,142 8,305 General and administrative expenses 2,017 2,967 4,111 5,525 Franchise expenses 743 685 1,344 1,263 Pre-opening expenses (1) 47 114 54 (Gain)/Loss on sale of assets (166) 656 (165) 699 Impairment of long-lived assets and other lease charges 533 5,057 681 5,226 Bad debt 89 298 213 351 Interest expense 63 2 131 2 Depreciation and amortization expense 288 740 600 1,517 Total costs and expenses 4,621 14,310 10,171 22,942 LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (424) (7,530) (542) (8,696) Income tax expense / (benefit) (27) 5 (14) 10 LOSS FROM CONTINUING OPERATIONS (397) (7,535) (528) (8,706) Loss from discontinued operations (180) (390) (405) (715) NET LOSS $ (577) $ (7,925) $ (933) $ (9,421) LOSS PER SHARE OF COMMON STOCK - BASIC: Loss from continuing operations $ (0.03) $ (0.71) $ (0.04) $ (0.82) Loss from discontinued operations (0.01) (0.03) (0.03) (0.07) Net loss $ (0.04) $ (0.74) $ (0.07) $ (0.89) LOSS PER SHARE OF COMMON STOCK - DILUTED: Loss from continuing operations $ (0.03) $ (0.71) $ (0.04) $ (0.82) Loss from discontinued operations $ (0.01) $ (0.03) $ (0.03) $ (0.07) Net loss $ (0.04) $ (0.74) $ (0.07) $ (0.89) Weighted average common shares outstanding - basic 14,344 10,657 12,742 10,575 Weighted average common and potential dilutive common shares outstanding 14,344 10,657 12,742 10,575 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. Three Months Ended REVENUES: $ 2,553 $ 1,903 COSTS AND EXPENSES: Cost of sales 0 78 General and administrative expenses 1,206 1,089 Franchise expenses 986 547 Impairment of long-lived assets and other lease charges 0 17 Bad debt expense 5 27 Interest expense 24 23 Depreciation and amortization expense 44 44 Total costs and expenses 2,265 1,825 INCOME BEFORE TAXES 288 78 Income tax expense 3 2 NET INCOME 285 76 INCOME PER SHARE OF COMMON STOCK - BASIC: $ 0.02 $ 0.00 INCOME PER SHARE OF COMMON STOCK - DILUTED: $ 0.02 $ 0.00 Weighted average common shares outstanding - basic 18,005 15,451 Weighted average common and potential dilutive common shares outstanding 18,803 16,249 CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) December 24, June 25, 2017 (unaudited) 2017 ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 1,428 $ 451 Accounts receivable, less allowance for bad debts accounts of $332 and $249, respectively 1,494 2,761 Notes receivable 2,060 675 Inventories 19 79 Income tax receivable - 194 Property held for sale 608 671 Prepaid expenses and other 448 295 Total current assets 6,057 5,126 LONG-TERM ASSETS Property, plant and equipment, net 1,667 3,808 Intangible assets definite-lived, net 228 239 Long-term notes receivable - 127 Deposits and other 243 246 Total assets $ 8,195 $ 9,546 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable - trade $ 1,428 $ 4,165 Short-term debt - 1,000 Accrued expenses 854 1,265 Deferred rent 41 101 Deferred revenues 97 212 Total current liabilities 2,420 6,743 Convertible notes 1,459 2,749 Deferred rent, net of current portion 294 655 Deferred revenues, net of current portion 715 1,425 Other long-term liabilities 45 53 Total liabilities 4,933 11,625 SHAREHOLDERS' EQUITY Common stock, $.01 par value; authorized 26,000,000 shares; issued 22,015,608 and 17,786,049 shares, respectively; outstanding 14,896,208 and 10,666,649 shares, respectively 220 178 Additional paid-in capital 33,016 26,784 Accumulated deficit (5,338) (4,405) Treasury stock at cost Shares in treasury: 7,119,400 (24,636) (24,636) Total shareholders' equity (deficit) 3,262 (2,079) $ 8,195 $ 9,546 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5
RAVE RESTAURANT GROUP, INC. | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(In thousands) | |||||||||
(Unaudited) | |||||||||
Six Months Ended | |||||||||
December 24, | December 25, | ||||||||
2017 | 2016 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net loss | $ (933) | $ (9,421) | |||||||
Adjustments to reconcile net loss to | |||||||||
cash used in operating activties: | |||||||||
Depreciation and amortization | 581 | 1,513 | |||||||
Amortization of intangible assets definite-lived | 19 | 26 | |||||||
Amortization of debt issue costs | 23 | - | |||||||
Impairment of long-lived assets | 681 | 4,773 | |||||||
Stock compensation expense | 19 | 90 | |||||||
(Gain)/loss on sale/disposal of assets | (166) | 699 | |||||||
Provision for bad debt | 213 | 351 | |||||||
Changes in operating assets and liabilities: | |||||||||
Notes and accounts receivable | 1,376 | 100 | |||||||
Inventories | 60 | (2) | |||||||
Accounts payable - trade | (3,667) | 680 | |||||||
Accrued expenses | (419) | (132) | |||||||
Deferred rent | (421) | (253) | |||||||
Deferred revenue | (690) | (246) | |||||||
Prepaid expenses and other | (150) | 182 | |||||||
Cash used in operating activities | (3,474) | (1,640) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Proceeds from sale of assets | 939 | 45 | |||||||
Purchase of intangible assets definite-lived | (9) | - | |||||||
Capital expenditures | (421) | (217) | |||||||
Cash provided by (used in) investing activities | 509 | (172) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Proceeds from sale of stock | 4,942 | - | |||||||
Proceeds from stock options | - | 806 | |||||||
Net change in other debt | (1,000) | 1,000 | |||||||
Cash provided by financing activities | 3,942 | 1,806 | |||||||
Net increase (decrease) in cash and cash equivalents | 977 | (6) | |||||||
Cash and cash equivalents, beginning of period | 451 | 873 | |||||||
Cash and cash equivalents, end of period | $ 1,428 | $ 867 | |||||||
<TABLE><CAPTION> | |||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||||||||
Cash paid during the period: | |||||||||
Interest paid | $ 115 | $ - | |||||||
Taxes paid | $ 48 | $ 25 | |||||||
Non-cash activities: | |||||||||
Capital expenditures included in accounts payable | $ 125 | $ - | |||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. |
September 26, 2021 | June 27, 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 7,876 | $ | 8,330 | ||||
Accounts receivable, less allowance for bad debts of $25 and $47, respectively | 832 | 911 | ||||||
Notes receivable, current | 568 | 901 | ||||||
Deferred contract charges, current | 33 | 35 | ||||||
Prepaid expenses and other | 150 | 196 | ||||||
Total current assets | 9,459 | 10,373 | ||||||
LONG-TERM ASSETS | ||||||||
Property, plant and equipment, net | 420 | 445 | ||||||
Operating lease right of use asset, net | 1,981 | 2,085 | ||||||
Intangible assets definite-lived, net | 202 | 183 | ||||||
Notes receivable, net of current portion | 302 | 52 | ||||||
Deferred contract charges, net of current portion | 212 | 207 | ||||||
Total assets | $ | 12,576 | $ | 13,345 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable - trade | $ | 521 | $ | 644 | ||||
Accrued expenses | 500 | 924 | ||||||
Other current liabilities | 46 | 46 | ||||||
Operating lease liability, current | 470 | 465 | ||||||
Short term loan, current | 120 | 250 | ||||||
Convertible notes short term, net of unamortized debt issuance costs and discounts | 1,583 | 1,576 | ||||||
Deferred revenues, current | 648 | 626 | ||||||
Total current liabilities | 3,888 | 4,531 | ||||||
LONG-TERM LIABILITIES | ||||||||
Operating lease liability, net of current portion | 1,792 | 1,911 | ||||||
Deferred revenues, net of current portion | 836 | 1,170 | ||||||
Total liabilities | 6,516 | 7,612 | ||||||
COMMITMENTS AND CONTINGENCIES (SEE NOTE D) | ||||||||
0 | 0 | |||||||
SHAREHOLDERS’ EQUITY | ||||||||
Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,090,058 and 25,090,058 shares, respectively; outstanding 18,004,904 and 18,004,904 shares, respectively | 251 | 251 | ||||||
Additional paid-in capital | 37,257 | 37,215 | ||||||
Accumulated deficit | (6,911 | ) | (7,196 | ) | ||||
Treasury stock at cost | ||||||||
Shares in treasury: 7,085,154 and 7,085,154, respectively | (24,537 | ) | (24,537 | ) | ||||
Total shareholders’ equity | 6,060 | 5,733 | ||||||
Total liabilities and shareholders’ equity | $ | 12,576 | $ | 13,345 |
Common Stock | Treasury Stock | |||||||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Shares | Amount | Total | ||||||||||||||||||||||
Balance, June 28, 2020 | 22,550 | $ | 225 | $ | 33,531 | $ | (8,716 | ) | (7,085 | ) | $ | (24,537 | ) | $ | 503 | |||||||||||||
Equity issue costs - ATM offering | — | 0 | (3 | ) | 0 | — | 0 | (3 | ) | |||||||||||||||||||
Net income | — | 0 | 0 | 76 | — | 0 | 76 | |||||||||||||||||||||
Balance, September 27, 2020 | 22,550 | $ | 225 | $ | 33,528 | $ | (8,640 | ) | (7,085 | ) | $ | (24,537 | ) | $ | 576 |
Common Stock | Treasury Stock | |||||||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Shares | Amount | Total | ||||||||||||||||||||||
Balance, June 27, 2021 | 25,090 | $ | 251 | $ | 37,215 | $ | (7,196 | ) | (7,085 | ) | $ | (24,537 | ) | $ | 5,733 | |||||||||||||
Stock compensation expense | — | 0 | 42 | 0 | — | 0 | 42 | |||||||||||||||||||||
Net income | — | 0 | 0 | 285 | — | 0 | 285 | |||||||||||||||||||||
Balance, September 26, 2021 | 25,090 | $ | 251 | $ | 37,257 | $ | (6,911 | ) | (7,085 | ) | $ | (24,537 | ) | $ | 6,060 |
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 285 | $ | 76 | ||||
Adjustments to reconcile net income to cash used in operating activities: | ||||||||
Impairment of long-lived assets and other lease charges | 0 | 17 | ||||||
Stock compensation expense | 42 | 0 | ||||||
Depreciation and amortization | 36 | 35 | ||||||
Amortization of operating right of use assets | 104 | 146 | ||||||
Amortization of intangible assets definite-lived | 8 | 9 | ||||||
Amortization of debt issue costs | 7 | 7 | ||||||
Provision for bad debt | 5 | 27 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 74 | (74 | ) | |||||
Notes receivable | 26 | 62 | ||||||
Deferred contract charges | (3 | ) | (3 | ) | ||||
Prepaid expenses and other | 46 | (44 | ) | |||||
Deposits and other | 0 | 5 | ||||||
Accounts payable - trade | (123 | ) | 23 | |||||
Accounts payable - lease termination impairments | 0 | (3 | ) | |||||
Accrued expenses | (424 | ) | (90 | ) | ||||
Operating lease liability | (114 | ) | (152 | ) | ||||
Deferred revenue | (312 | ) | (48 | ) | ||||
Cash used in operating activities | (343 | ) | (7 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments received on notes receivable | 57 | 4 | ||||||
Purchase of intangible assets definite-lived | (27 | ) | 0 | |||||
Purchase of property, plant and equipment | (11 | ) | (27 | ) | ||||
Cash provided by/(used in) investing activities | 19 | (23 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | �� | |||||||
Equity issuance costs - ATM offering | 0 | (3 | ) | |||||
Short term loan, current | (130 | ) | 0 | |||||
Cash used in financing activities | (130 | ) | (3 | ) | ||||
Net decrease in cash, cash equivalents and restricted cash | (454 | ) | (33 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 8,330 | 3,203 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 7,876 | $ | 3,170 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
CASH PAID FOR: | ||||||||
Interest | $ | 0 | $ | 0 | ||||
Income taxes | $ | (2 | ) | $ | 7 | |||
Non-cash activities: | ||||||||
Conversion of notes to common shares | $ | 0 | $ | 0 | ||||
Operating lease right of use assets at adoption | $ | 0 | $ | 0 | ||||
Operating lease liability at adoption | $ | 0 | $ | 0 |
27, 2021.
Revenue Recognition
The Company recognizes revenue when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Revenue from restaurant sales is recognized when food and beverage products are sold. The Company reports revenue net of sales taxes collected from customers and remitted to governmental taxing authorities.
Franchise revenues consist of income from license fees, royalties, and area development and foreign master license fees and supplier and distributor incentive revenues. License fees are recognized as income when there has been substantial performance under the agreement by the Company. Domestic license fees are generally recognized at the time the restaurant is opened. Foreign master license fees are generally recognized upon execution of the agreement as all material services relating to the sale have been substantially performed by the Company and the fee has been collected. Royalties are recognized as income when earned. Supplier and distributor incentive revenues are recognized when title to the underlying commodities transfers.
Stock-Based Compensation
The Company accounts for stock options using the fair value recognition provisions of the authoritative guidance on share-based payments. The Company uses the Black-Scholes formula to estimate the value of stock-based compensation for options granted to employees and directors and expects to continue to use this acceptable option valuation model in the future. The authoritative guidance also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow.
Restricted Stock Units
Compensation cost for restricted stock units (“RSU’s”) is measured as an amount equal to the fair value of the RSU’s 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.
Reclassification
Certain items have been reclassified
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
Franchise royalties | $ | 1,082 | $ | 858 | ||||
Supplier and distributor incentive revenues | 866 | 767 | ||||||
Franchise license fees | 31 | 102 | ||||||
Area development fees and foreign master license fees | 5 | 4 | ||||||
Advertising funds | 375 | 125 | ||||||
Supplier convention funds | 143 | 0 | ||||||
Rental income | 47 | 48 | ||||||
Other | 4 | (1 | ) | |||||
$ | 2,553 | $ | 1,903 |
Discontinuationsupport its operations. A more detailed description of Norco Distribution Division
Duringsignificant lease types is included below.
Three Months Ended | ||||
September 26, 2021 | ||||
Operating lease cost | $ | 125 | ||
Rental income | (47 | ) | ||
Total lease expense, net of sublease income | $ | 78 |
Three Months Ended | ||||
September 26, 2021 | ||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 138 |
September 26, 2021 | ||||
Weighted average remaining lease term | 4.0 Years | |||
Weighted average discount rate | 4.0 | % |
Operating Leases | ||||
Remainder of fiscal year 2022 | $ | 414 | ||
2023 | 558 | |||
2024 | 511 | |||
2025 | 433 | |||
2026 | 382 | |||
Thereafter | 191 | |||
Total operating lease payments | $ | 2,489 | ||
Less: imputed interest | (227 | ) | ||
Total operating lease liability | $ | 2,262 |
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 first adopted on May 23, 2007 and previously amended on June 2, 2008,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 no0 stock repurchasespurchases in the second quarter of fiscal 2018. As of December 24, 2017, up to an additional 848,425 shares could be repurchased under the 2007 Stock Purchase Plan.
quarters ended September 26, 2021 or September 27, 2020.
(3)
options.
<BTB> | Six Months Ended | ||
<BTB> | December 24, 2017 | December 25, 2016 | |
Outstanding at beginning of year | 478,056 | 847,556 | |
Granted | - | 50,000 | |
Exercised | - | (315,000) | |
Forfeited/Canceled/Expired | - | (80,000) | |
Outstanding at end of period | 478,056 | 502,556 | |
Exercisable at end of period | 438,056 | 365,406 |
Three Months Ended Shares Shares Outstanding at beginning of year 166,750 206,750 Granted 0 0 Exercised 0 0 Forfeited/Canceled/Expired 0 0 Outstanding at end of period 166,750 206,750 Exercisable at end of period 166,750 206,750
RSUs.
Unvested at June 27, 2021 | ||||
545,600 | ||||
Granted | 0 | |||
Issued | 0 | |||
Forfeited | (22,412 | ) | ||
Unvested at | | |||
| ||||
| ||||
Three Months Ended | Six Months Ended | ||||||
December 24, | December 25, | December 24, | December 25, | ||||
2017 | 2016 | 2017 | 2016 | ||||
Loss from continuing operations | $ (397) | $ (7,535) | $ (528) | $ (8,706) | |||
Loss from discontinued operations | (180) | (390) | (405) | (715) | |||
Net loss available to common stockholders | $ (577) | $ (7,925) | $ (933) | $ (9,421) | |||
BASIC: | |||||||
Weighted average common shares | 14,344 | 10,657 | 12,742 | 10,575 | |||
Loss from continuing operations per common share | $ (0.03) | $ (0.71) | $ (0.04) | $ (0.82) | |||
Loss from discontinued operations per common share | (0.01) | (0.03) | (0.03) | (0.07) | |||
Net loss per common share | $ (0.04) | $ (0.74) | $ (0.07) | $ (0.89) | |||
DILUTED: | |||||||
Weighted average common shares | 14,344 | 10,657 | 12,742 | 10,575 | |||
Stock options | - | - | - | - | |||
Weighted average common shares outstanding | 14,344 | 10,657 | 12,742 | 10,575 | |||
Loss from continuing operations per common share | $ (0.03) | $ (0.71) | $ (0.04) | $ (0.82) | |||
Loss from discontinued operations per common share | (0.01) | (0.03) | (0.03) | (0.07) | |||
Net loss per common share | $ (0.04) | $ (0.74) | $ (0.07) | $ (0.89) |
:
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
Net income available to common shareholders | $ | 285 | $ | 76 | ||||
BASIC: | ||||||||
Weighted average common shares | 18,005 | 15,451 | ||||||
Net income per common share | $ | 0.02 | $ | 0.00 | ||||
DILUTED: | ||||||||
Weighted average common shares | 18,005 | 15,451 | ||||||
Convertible notes | 798 | 798 | ||||||
Dilutive stock options | 0 | 0 | ||||||
Weighted average common shares outstanding | 18,803 | 16,249 | ||||||
Net income per common share | $ | 0.02 | $ | 0.00 |
(5) Closed restaurants and discontinued operations
In April, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Presentationthey had an intrinsic value 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.
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 include losses attributable to the discontinued Norco distribution and supply division, leased buildings associated with Company-owned units closed in prior years, and closed Pizza Inn corporate-owned units.
(6) Income Taxes
0.For the sixthree months ended December 24, 2017,September 27, 2020, options to purchase 206,750 shares of common stock at exercise prices ranging from $2.71 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of 0.
taxes. The Company utilized net operating losses to offset federal taxes.
In December 2017, President Donald Trump signed the Tax Cutsproducts and Jobs Act. The new law drops the income tax rate for corporationsservices sold. Corporate administration costs, which include, but are not limited to, 21% effective January 1, 2018. Duegeneral accounting, human resources, legal and credit and collections, are partially allocated to the tax rate change, the deferred tax assets as3 operating segments. Other revenue consists of December 24, 2017 were adjusted by $3.3 millionnon-recurring items.
(7) Related Party Transactions
On February 20, 2014, the Company entered into an Advisory Services Agreement (the “Agreement”) with NCM Services, Inc. (“NCMS”) pursuant to which NCMS would provide certain advisoryPie Five Franchising segments establish franchisees, licensees and consulting services to the Company. NCMSterritorial rights. Revenue for this segment is indirectly owned and controlled by Mark E. Schwarz, the Chairman of the Company. The term of the Agreement commenced December 30, 2013, and continued quarterly thereafter until terminated by either party. Pursuant to the Agreement, NCMS was paid an initial fee of $150,000 and earned quarterlyprimarily derived from franchise royalties, franchise license 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 were waived if the Company was 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. The Agreement was terminated at the end of fiscal 2017.
During the fiscal quarter ended December 24, 2017, the Company discontinued its Norco distribution division and revised its arrangements with third party suppliers and distributors of food, equipment and supplies. As a result, sale of food, equipmentarea development and supplies is no longer recognized as revenue and the cost of such items is no longer included in cost of sales. The Company now recognizesforeign master license rights, incentive revenues receivedpayments from third party suppliers and distributors, advertising funds, and supplier convention funds. Assets for these segments include equipment, furniture and fixtures.
In order to showwell as furniture and fixtures located at the impact of this changecorporate office and better reflecttrademarks and other intangible assets. All assets are located within the current operational structure, the Company has redefined its operating segments as Pizza Inn Franchising, Pie Five Franchising and Company-Owned Restaurants. United States.
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
Net sales and operating revenues: | ||||||||
Pizza Inn Franchising | $ | 2,034 | $ | 1,380 | ||||
Pie Five Franchising | 472 | 476 | ||||||
Corporate administration and other | 47 | 47 | ||||||
Consolidated revenues | $ | 2,553 | $ | 1,903 | ||||
Depreciation and amortization: | ||||||||
Pizza Inn Franchising | $ | 0 | $ | 0 | ||||
Pie Five Franchising | 0 | 0 | ||||||
Company-Owned Restaurants | 0 | 0 | ||||||
Corporate administration and other | 44 | 44 | ||||||
Depreciation and amortization | $ | 44 | $ | 44 | ||||
Income before taxes: | ||||||||
Pizza Inn Franchising | $ | 1,275 | $ | 1,100 | ||||
Pie Five Franchising | 245 | 209 | ||||||
Company-Owned Restaurants | (1 | ) | (100 | ) | ||||
Combined | 1,519 | 1,209 | ||||||
Corporate administration and other | (1,231 | ) | (1,131 | ) | ||||
Income before taxes | $ | 288 | $ | 78 | ||||
Revenues by geography: | ||||||||
United States | $ | 2,477 | $ | 1,859 | ||||
Foreign countries | 76 | 44 | ||||||
Consolidated revenues | $ | 2,553 | $ | 1,903 |
Three Months Ended | Six Months Ended | ||||||||
<BTB> | December 24, | December 25, | December 24, | December 25, | |||||
2017 | 2016 | 2017 | 2016 | ||||||
Net sales and operating revenues: | |||||||||
Pizza Inn Franchising | $ 1,718 | $ 1,782 | $ 3,492 | $ 3,656 | |||||
Pie Five Franchising | 912 | 938 | 2,395 | 1,823 | |||||
Company-owned restaurants (Note 1) | 1,567 | 4,060 | 3,742 | 8,767 | |||||
Consolidated revenues | $ 4,197 | $ 6,780 | $ 9,629 | $ 14,246 | |||||
Depreciation and amortization: | |||||||||
Pizza Inn Franchising | $ - | $ - | $ - | $ - | |||||
Pie Five Franchising | - | - | - | - | |||||
Company-owned restaurants (Note 1) | 173 | 628 | 373 | 1,304 | |||||
Combined | 173 | 628 | 373 | 1,304 | |||||
Corporate administration and other | 115 | 112 | 227 | 213 | |||||
Depreciation and amortization | $ 288 | $ 740 | $ 600 | $ 1,517 | |||||
Gain/(Loss) from continuing operations before taxes: | |||||||||
Pizza Inn Franchising | $ 1,398 | $ 1,459 | $ 2,877 | $ 3,030 | |||||
Pie Five Franchising | 489 | 576 | 1,666 | 1,186 | |||||
Company-owned restaurants (Note 1) | (464) | (6,271) | (1,342) | (7,774) | |||||
Combined | 1,423 | (4,236) | 3,201 | (3,558) | |||||
Corporate administration and other | (1,847) | (3,294) | (3,743) | (5,138) | |||||
Loss from continuing operations before taxes | $ (424) | $ (7,530) | $ (542) | $ (8,696) | |||||
Geographic information (revenues): | |||||||||
United States | $ 3,983 | $ 6,733 | $ 9,336 | $ 14,103 | |||||
Foreign countries | 214 | 47 | 293 | 143 | |||||
Consolidated total | $ 4,197 | $ 6,780 | $ 9,629 | $ 14,246 | |||||
<FN> | |||||||||
Note 1: | |||||||||
Company stores that were closed are included in discontinued operations in the accompanying | |||||||||
Condensed Consolidated Statement of Operations. |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25, 2017,27, 2021 and may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 25, 2017.27, 2021. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. operates and franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants domestically and internationally under the trademark “Pizza Inn” and operates domesticfranchises fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party suppliersdistributors. At September 26, 2021, franchised and distributors. The following chart presents information concerning Company-owned and franchised restaurants aslicensed units consisted of and for the three and six month periods ended December 24, 2017:following: Three Months Ended December 24, 2017 (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 - $ - 3 $ 1,567 3 $ 1,567 Domestic Franchised 156 20,906 77 9,986 233 30,892 Total Domestic Units 156 $ 20,906 80 $ 11,553 236 $ 32,459 International Franchised 62 - 62 Six Months Ended December 24, 2017 (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 - $ - 3 $ 3,742 3 $ 3,742 Domestic Franchised 156 42,800 77 20,252 233 63,052 Total Domestic Units 156 $ 42,800 80 $ 23,994 236 $ 66,794 International Franchised 62 - 62 Pizza Inn Pie Five All Concepts Domestic Franchised/Licensed 133 $ 20,347 33 $ 5,060 166 $ 25,407 International Franchised 32 — 32
Domestic units are located in 2319 states predominantly situated in the southern half of the United States. International units are located in six foreign countries.
Basic and diluted loss per common share improved $0.82 per share tosupplies or any significant delays in receiving our food or beverage inventories, restaurant supplies or products, but disruption of supply chains as a lossresult of $0.07 per share for the six month period ended December 24, 2017, compared to a loss of $0.89 per shareCOVID-19 or other factors could cause difficulty in obtaining inventories or supplies in the comparable periodforeseeable future.
Adjusted EBITDA for the fiscal quarter ended December 24, 2017, improved by $0.9 million compared to the prior fiscal year. Year-to-date adjusted EBITDA increased to $0.5 million compared to a loss of $0.9 million the prior fiscal year. The following table sets forth a reconciliation of net income to Adjusted EBITDA for the periods shown (in thousands):
Three Months Ended | Six Months Ended | ||||||
December 24, | December 25, | December 24, | December 25, | ||||
2017 | 2016 | 2017 | 2016 | ||||
Net loss | $ (577) | $ (7,925) | $ (933) | $ (9,421) | |||
Interest expense | 63 | 2 | 131 | 2 | |||
Income taxes | (27) | 5 | (14) | 10 | |||
Depreciation and amortization | 288 | 740 | 600 | 1,517 | |||
EBITDA | $ (253) | $ (7,178) | $ (216) | $ (7,892) | |||
Stock compensation expense | 10 | 45 | 19 | 90 | |||
Pre-opening costs | (1) | 47 | 114 | 54 | |||
(Gain)/Loss on sale/disposal of assets | (166) | 656 | (165) | 699 | |||
Impairment of long-lived assets and other lease charges | 533 | 5,057 | 681 | 5,226 | |||
Discontinued operations and closed and non-operating store costs | (291) | 347 | 72 | 884 | |||
Adjusted EBITDA | $ (168) | $ (1,026) | $ 505 | $ (939) |
Pie Five Brand Summary
The following tables summarize certain key indicators for the Pie Five franchised and Company-owned restaurants that management believes are useful in evaluating performance.
Three Months Ended | Six Months Ended | ||||||
December 24, | December 25, | December 24, | December 25, | ||||
2017 | 2016 | 2017 | 2016 | ||||
(in thousands, except unit data) | (in thousands, except unit data) | ||||||
Pie Five Retail Sales - Total Units | |||||||
Domestic - Franchised | $ 9,986 | $ 10,161 | $ 20,252 | $ 20,501 | |||
Domestic - Company-owned | 1,567 | 4,060 | 3,742 | 8,767 | |||
Total domestic retail sales | $ 11,553 | $ 14,221 | $ 23,994 | $ 29,268 | |||
Pie Five Comparable Store Retail Sales - Total | $ 7,840 | $ 9,087 | $ 15,184 | $ 17,961 | |||
Pie Five Average Units Open in Period | |||||||
Domestic - Franchised | 72 | 67 | 71 | 63 | |||
Domestic - Company-owned | 10 | 30 | 12 | 30 | |||
Total domestic Units | 82 | 97 | 83 | 93 |
Pie Five system-wide retail sales decreased $2.7 million, or 18.8%, for the three month period ended December 24, 2017 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 97 to 82. Comparable store retail sales decreased by $1.2 million, or 13.7%, during the secondfourth quarter of fiscal 2018 compared to the same period of the prior year.
Pie Five system-wide retail sales decreased $5.3 million, or 18.0%,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 six month period ended December 24, 2017 when compared tofourth quarter of fiscal 2020, as well as reducing other expenses. While the same periodCompany will remain focused on controlling expenses, future results of operations could be materially adversely impacted by the prior year. Year-to-date fiscal 2018 compared to the year-to-date of the prior year, average units open in the period decreased from 93 to 83. Comparable store retail sales decreased by $2.8 million, or 15.5%, during the first six month period ended December 24, 2018 compared to the same period of the prior fiscal year.
The following chart summarizes Pie Five Unit activity for the threepandemic and six month periods ended December 24, 2017:
Three Months Ended December 24, 2017 | |||||||||
Beginning | Ending | ||||||||
Units | Opened | Transfer | Closed | Units | |||||
Domestic - Franchised | 69 | 2 | 11 | 5 | 77 | ||||
Domestic - Company-owned | 14 | - | (11) | - | 3 | ||||
Total domestic Units | 83 | 2 | - | 5 | 80 | ||||
Six Months Ended December 24, 2017 | |||||||||
Beginning | Ending | ||||||||
Units | Opened | Transfer | Closed | Units | |||||
Domestic - Franchised | 71 | 5 | 11 | 10 | 77 | ||||
Domestic - Company-owned | 13 | 1 | (11) | - | 3 | ||||
Total domestic Units | 84 | 6 | - | 10 | 80 |
The net decrease of threeits aftermath.
The net decrease of four Pie Five Units during the first six month period ended December 24, 2018 was primarily the result of the closure of poor-performing stores, which we believe will provide a stronger foundation for future brand growth. We believe that the net increase of six franchised Pie Five Units in the first six month period ended December 24, 2017 is a demonstration of brand strength and strategic commitment to franchise operations. We do not anticipate the opening of additional Company-owned Pie Five Units in the near future.
Pie Five - Company-Owned Restaurants | Three Months Ended | Six Months Ended | |||||
(in thousands, except store weeks and average data) | December 24, | December 25, | December 24, | December 25, | |||
2017 | 2016 | 2017 | 2016 | ||||
Store weeks | 130 | 386 | 307 | 786 | |||
Average weekly sales | 11,594 | 10,517 | 11,979 | 11,151 | |||
Average number of units | 10 | 30 | 12 | 30 | |||
Restaurant sales (excluding partial weeks) | 1,507 | 4,060 | 3,677 | 8,765 | |||
Restaurant sales | 1,567 | 4,060 | 3,742 | 8,767 | |||
Loss from continuing operations before taxes | (464) | (6,269) | (1,342) | (7,774) | |||
Allocated marketing and advertising expenses | 78 | 204 | 187 | 438 | |||
Depreciation/amortization expense | 173 | 628 | 373 | 1,304 | |||
Pre-opening costs | (1) | 47 | 114 | 54 | |||
Operations management and extraordinary expenses | 28 | 213 | 83 | 440 | |||
Impairment, other lease charges and non-operating store costs | 61 | 5,121 | 345 | 5,506 | |||
Loss from continuing operations before taxes | (135) | (56) | (240) | (32) |
Average weekly sales for Company-owned Pie Five Units increased $1,077, or 10.2%, to $11,594 for the three month period ended December 24, 2017 compared to $10,517 for the same period of the prior fiscal year. Company-owned Pie Five restaurant operating cash flow decreased $0.1 million during the second quarter of fiscal 2018 compared to the same period of prior year. Loss from continuing operations before taxes for Company-owned Pie Five stores improved $5.8 million for the three month period ended December 24, 2017 compared to the same period of the prior year. For the Pie Five Company-owned restaurants, the decrease in sales was due to decreased store count, and the increase in average weekly sales was due to closing underperforming stores.
Average weekly sales for Company-owned Pie Five Units increased $828, or 7.4%, to $11,979 for the six month period ended December 24, 2017 compared to $11,151 for the same period of prior year. Company-owned Pie Five restaurant operating cash flow decreased $0.2 million during the six month period ended December 24, 2017 compared to the same period of prior year. Loss from continuing operations before taxes for Company-owned Pie Five stores improved $6.4 million for the six month period ended December 24, 2017 compared to the same period of the prior year. For the Pie Five Company-owned restaurants, the decrease in sales was due to decreased store count, and the increase in average weekly sales was due to closing underperforming stores.
Pizza Inn Brand Summary
The following tables summarize certain key indicators for the Pizza Inn franchised and Company-owned domestic units that management believes are useful in evaluating performance.
Three Months Ended | Six Months Ended | ||||||
December 24, | December 25, | December 24, | December 25, | ||||
2017 | 2016 | 2017 | 2016 | ||||
Pizza Inn Retail Sales - Total Domestic Units | (in thousands, except unit data) | (in thousands, except unit data) | |||||
Domestic Units | |||||||
Buffet - Franchised | $ 19,267 | $ 19,802 | $ 39,406 | $ 40,009 | |||
Delco/Express - Franchised | 1,639 | 1,658 | 3,394 | 3,362 | |||
Buffet - Company-owned | - | 167 | - | 359 | |||
Total domestic retail sales | $ 20,906 | $ 21,627 | $ 42,800 | $ 43,730 | |||
Pizza Inn Comparable Store Retail Sales - Total Domestic | $ 19,784 | $ 19,257 | $ 40,244 | $ 39,375 | |||
Pizza Inn Average Units Open in Period | |||||||
Domestic Units | |||||||
Buffet - Franchised | 91 | 95 | 91 | 95 | |||
Delco/Express - Franchised | 67 | 64 | 67 | 63 | |||
Buffet - Company-owned | - | 1 | - | 1 | |||
Total domestic Units | 158 | 160 | 158 | 159 |
Total Pizza Inn domestic retail sales decreased $0.7 million, or 3.3%, for the three month period ended December 24, 2017 when compared to the same period of the prior year. Pizza Inn domestic comparable store retail sales increased 2.7%, for the three month period ended December 24, 2017 when compared to the same period of the prior year.
Total Pizza Inn domestic retail sales decreased $0.9 million, or 2.1%, for the six month period ended December 24, 2017 when compared to the same period of the prior year. Pizza Inn domestic comparable store retail sales increased 2.2%, for the six month period ended December 24, 2017 when compared to the same period of the prior year.
The following chart summarizes Pizza Inn unit activity for the three month and six month periods ended December 24, 2017:
Three Months Ended December 24, 2017 | |||||||||
Beginning | Concept | Ending | |||||||
Units | Opened | Change | Closed | Units | |||||
Domestic Units | |||||||||
Buffet - Franchised | 91 | - | - | 1 | 90 | ||||
Delco/Express - Franchised | 68 | 1 | - | 3 | 66 | ||||
Total domestic Units | 159 | 1 | 4 | 156 | |||||
International Units (all types) | 60 | 2 | - | - | 62 | ||||
Total Units | 219 | 3 | - | 4 | 218 | ||||
Six Months Ended December 24, 2017 | |||||||||
Beginning | Concept | Ending | |||||||
Units | Opened | Change | Closed | Units | |||||
Domestic Units | |||||||||
Buffet - Franchised | 93 | - | - | 3 | 90 | ||||
Delco/Express - Franchised | 68 | 2 | - | 4 | 66 | ||||
Total domestic Units | 161 | 2 | 7 | 156 | |||||
International Units (all types) | 60 | 2 | - | - | 62 | ||||
Total Units | 221 | 4 | - | 7 | 218 |
There was a net decrease of three units in the total domestic Pizza Inn store count during the three month period ended December 24, 2017. There was a net decrease of five units in the total domestic Pizza Inn store count during the six month period ended December 24, 2017. We believe this represents a stabilizing of domestic store count. The number of international Pizza Inn units increased by two units in the three month period ended December 24, 2017
Non-GAAP Financial Measures and Other Terms
“EBITDA” represents earnings before interest, taxes, depreciation and amortization. |
“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock compensation expense, |
“Retail sales” represents the restaurant sales reported by our franchisees, |
“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) |
“Non-operating store costs” represent gain or loss on asset disposal, store closure expenses, lease termination expenses and expenses related to abandoned store sites. |
“ |
Financial Results
During
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
Net income | $ | 285 | $ | 76 | ||||
Interest expense | 24 | 23 | ||||||
Income taxes | 3 | 2 | ||||||
Depreciation and amortization | 44 | 44 | ||||||
EBITDA | $ | 356 | $ | 145 | ||||
Stock compensation expense | 42 | — | ||||||
Severance | 33 | — | ||||||
Impairment of long-lived assets and other lease charges | — | 17 | ||||||
Franchisee default and closed store revenue | (1 | ) | (67 | ) | ||||
Closed and non-operating store costs | 1 | 82 | ||||||
Adjusted EBITDA | $ | 431 | $ | 177 |
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
Pizza Inn Retail Sales - Total Domestic Units | (in thousands, except unit data) | |||||||
Domestic Units | ||||||||
Buffet Units - Franchised | $ | 18,645 | $ | 14,724 | ||||
Delco/Express Units - Franchised | 1,642 | 1,536 | ||||||
PIE Units - Licensed | 60 | 59 | ||||||
Total Domestic Retail Sales | $ | 20,347 | $ | 16,319 | ||||
Pizza Inn Comparable Store Retail Sales - Total Domestic | 19,768 | 15,812 | ||||||
Pizza Inn Average Units Open in Period | ||||||||
Domestic Units | ||||||||
Buffet Units - Franchised | 71 | 79 | ||||||
Delco/Express Units - Franchised | 52 | 55 | ||||||
PIE Units - Licensed | 10 | 12 | ||||||
Total Domestic Units | 133 | 146 |
Three Months Ended September 26, 2021 | ||||||||||||||||||||
Beginning Units | Opened | Concept Change | Closed | Ending Units | ||||||||||||||||
Domestic Units | ||||||||||||||||||||
Buffet Units - Franchised | 70 | 1 | — | — | 71 | |||||||||||||||
Delco/Express Units - Franchised | 54 | — | — | 2 | 52 | |||||||||||||||
PIE Units - Licensed | 11 | — | — | 1 | 10 | |||||||||||||||
Total Domestic Units | 135 | 1 | — | 3 | 133 | |||||||||||||||
International Units (all types) | 32 | — | — | — | 32 | |||||||||||||||
Total Units | 167 | 1 | — | 3 | 165 |
Three Months Ended | ||||||||
September 26, 2021 | September 27, 2020 | |||||||
(in thousands, except unit data) | ||||||||
Pie Five Retail Sales - Total Units | ||||||||
Domestic Units - Franchised | $ | 5,060 | $ | 4,507 | ||||
Domestic Units - Company-owned | — | — | ||||||
Total Domestic Retail Sales | $ | 5,060 | $ | 4,507 | ||||
Pie Five Comparable Store Retail Sales - Total | $ | 4,745 | $ | 4,039 | ||||
Pie Five Average Units Open in Period | ||||||||
Domestic Units - Franchised | 33 | 39 | ||||||
Domestic Units - Company-owned | — | — | ||||||
Total Domestic Units | 33 | 39 |
Three Months Ended September 26, 2021 | ||||||||||||||||||||
Beginning Units | Opened | Transfer | Closed | Ending Units | ||||||||||||||||
Domestic - Franchised | 33 | — | — | — | 33 | |||||||||||||||
Domestic - Company-owned | — | — | — | — | — | |||||||||||||||
Total Domestic Units | 33 | — | — | — | 33 |
In order to show the impact of this change and better reflect the current operational structure, the Company has redefineddefines its operating segments as Pizza Inn Franchising, Pie Five Franchising and Company-Owned Restaurants. The following is additional business segment information for the three months ended September 26, 2021 and six month periods ended December 24, 2017 and December 25, 2016September 27, 2020 (in thousands):
Pizza Inn | Pie Five | Company-Owned | |||||||||||||||||||
Franchising | Franchising | Stores | Corporate | Total | |||||||||||||||||
Fiscal Quarter Ended | Fiscal Quarter Ended | Fiscal Quarter Ended | Fiscal Quarter Ended | Fiscal Quarter Ended | |||||||||||||||||
Dec 24, | Dec 25, | Dec 24, | Dec 25, | Dec 24, | Dec 25, | Dec 24, | Dec 25, | Dec 24, | Dec 25, | ||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES: | |||||||||||||||||||||
Franchise revenues | 1,718 | 1,782 | 912 | 938 | - | - | - | - | 2,630 | 2,720 | |||||||||||
Restaurant sales | - | - | - | - | 1,567 | 4,060 | - | - | 1,567 | 4,060 | |||||||||||
Total revenues | 1,718 | 1,782 | 912 | 938 | 1,567 | 4,060 | - | - | 4,197 | 6,780 | |||||||||||
COSTS AND EXPENSES: | |||||||||||||||||||||
Cost of sales | - | - | - | - | 1,055 | 3,858 | - | - | 1,055 | 3,858 | |||||||||||
General and administrative expenses | - | - | - | - | 271 | 739 | 1,746 | 2,228 | 2,017 | 2,967 | |||||||||||
Franchise expenses | 320 | 323 | 423 | 362 | - | - | - | - | 743 | 685 | |||||||||||
Pre-opening expenses | - | - | - | - | (1) | 47 | - | - | (1) | 47 | |||||||||||
(Gain)/Loss on sale of assets | - | - | - | - | - | - | (166) | 656 | (166) | 656 | |||||||||||
Impairment of long-lived assets | |||||||||||||||||||||
and other lease charges | - | - | - | - | 533 | 5,057 | - | - | 533 | 5,057 | |||||||||||
Bad debt | - | - | - | - | - | - | 89 | 298 | 89 | 298 | |||||||||||
Interest expense | - | - | - | - | - | - | 63 | 2 | 63 | 2 | |||||||||||
Amortization and depreciation expense | - | - | - | - | 173 | 628 | 115 | 112 | 288 | 740 | |||||||||||
Total costs and expenses | 320 | 323 | 423 | 362 | 2,031 | 10,329 | 1,847 | 3,296 | 4,621 | 14,310 | |||||||||||
INCOME (LOSS) FROM CONTINUING | |||||||||||||||||||||
OPERATIONS BEFORE TAXES | 1,398 | 1,459 | 489 | 576 | (464) | (6,269) | (1,847) | (3,296) | (424) | (7,530) | |||||||||||
Pizza Inn | Pie Five | Company-Owned | |||||||||||||||||||
Franchising | Franchising | Stores | Corporate | Total | |||||||||||||||||
Fiscal Year-to-Date | Fiscal Year-to-Date | Fiscal Year-to-Date | Fiscal Year-to-Date | Fiscal Year-to-Date | |||||||||||||||||
Dec 24, | Dec 25, | Dec 24, | Dec 25, | Dec 24, | Dec 25, | Dec 24, | Dec 25, | Dec 24, | Dec 25, | ||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES: | |||||||||||||||||||||
Franchise revenues | 3,492 | 3,656 | 2,395 | 1,823 | - | - | - | - | 5,887 | 5,479 | |||||||||||
Restaurant sales | - | - | - | - | 3,742 | 8,767 | - | - | 3,742 | 8,767 | |||||||||||
Total revenues | 3,492 | 3,656 | 2,395 | 1,823 | 3,742 | 8,767 | - | - | 9,629 | 14,246 | |||||||||||
COSTS AND EXPENSES: | |||||||||||||||||||||
Cost of sales | - | - | - | - | 3,142 | 8,305 | - | - | 3,142 | 8,305 | |||||||||||
General and administrative expenses | - | - | - | - | 650 | 1,652 | 3,461 | 3,873 | 4,111 | 5,525 | |||||||||||
Franchise expenses | 615 | 626 | 729 | 637 | - | - | - | - | 1,344 | 1,263 | |||||||||||
Pre-opening expenses | - | - | - | - | 114 | 54 | - | - | 114 | 54 | |||||||||||
(Gain)/Loss on sale of assets | - | - | - | - | - | - | (165) | 699 | (165) | 699 | |||||||||||
Impairment of long-lived assets | |||||||||||||||||||||
and other lease charges | - | - | - | - | 681 | 5,226 | - | - | 681 | 5,226 | |||||||||||
Bad debt | - | - | - | - | 124 | - | 89 | 351 | 213 | 351 | |||||||||||
Interest expense | - | - | - | - | - | - | 131 | 2 | 131 | 2 | |||||||||||
Amortization and depreciation expense | - | - | - | - | 373 | 1,304 | 227 | 213 | 600 | 1,517 | |||||||||||
Total costs and expenses | 615 | 626 | 729 | 637 | 5,084 | 16,541 | 3,743 | 5,138 | 10,171 | 22,942 | |||||||||||
INCOME (LOSS) FROM CONTINUING | |||||||||||||||||||||
OPERATIONS BEFORE TAXES | 2,877 | 3,030 | 1,666 | 1,186 | (1,342) | (7,774) | (3,743) | (5,138) | (542) | (8,696) |
Pizza Inn Franchising | Pie Five Franchising | Company-Owned Restaurants | Corporate | Total | ||||||||||||||||||||||||||||||||||||
Fiscal Quarter Ended | Fiscal Quarter Ended | Fiscal Quarter Ended | Fiscal Quarter Ended | Fiscal Quarter Ended | ||||||||||||||||||||||||||||||||||||
September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | |||||||||||||||||||||||||||||||
REVENUES: | ||||||||||||||||||||||||||||||||||||||||
Franchise and license revenues | $ | 2,034 | $ | 1,380 | $ | 468 | $ | 476 | $ | — | $ | — | $ | — | $ | — | $ | 2,502 | $ | 1,856 | ||||||||||||||||||||
Rental income | — | — | — | — | — | — | 47 | 48 | 47 | 48 | ||||||||||||||||||||||||||||||
Interest income and other | — | — | 4 | — | — | — | — | (1 | ) | 4 | (1 | ) | ||||||||||||||||||||||||||||
Total revenues | 2,034 | 1,380 | 472 | 476 | — | — | 47 | 47 | 2,553 | 1,903 | ||||||||||||||||||||||||||||||
COSTS AND EXPENSES: | ||||||||||||||||||||||||||||||||||||||||
Cost of sales | — | — | — | — | — | 78 | — | — | — | 78 | ||||||||||||||||||||||||||||||
General and administrative expenses | — | — | — | — | 1 | 5 | 1,205 | 1,084 | 1,206 | 1,089 | ||||||||||||||||||||||||||||||
Franchise expenses | 759 | 280 | 227 | 267 | — | — | — | — | 986 | 547 | ||||||||||||||||||||||||||||||
Loss (gain) on sale of assets | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Impairment of long-lived assets and other lease charges | — | — | — | — | — | 17 | — | — | — | 17 | ||||||||||||||||||||||||||||||
Bad debt expense | — | — | — | — | — | — | 5 | 27 | 5 | 27 | ||||||||||||||||||||||||||||||
Interest expense | — | — | — | — | — | — | 24 | 23 | 24 | 23 | ||||||||||||||||||||||||||||||
Depreciation and amortization expense | — | — | — | — | — | — | 44 | 44 | 44 | 44 | ||||||||||||||||||||||||||||||
Total costs and expenses | 759 | 280 | 227 | 267 | 1 | 100 | 1,278 | 1,178 | 2,265 | 1,825 | ||||||||||||||||||||||||||||||
INCOME/(LOSS) BEFORE TAXES | $ | 1,275 | $ | 1,100 | $ | 245 | $ | 209 | $ | (1 | ) | $ | (100 | ) | $ | (1,231 | ) | $ | (1,131 | ) | $ | 288 | $ | 78 |
Revenues:
distributors
.franchise royalties, advertising funds contributions, and supplier convention funds.
advertising fund revenues.
Restaurant Sales
Restaurant sales, which consist of revenue generated by Company-owned restaurants, decreased 61.4%, or $2.5 million, to $1.6 million for the three month period ended December 24, 2017, compared to $4.1 million for the comparable period in the prior year. In the six month period ended December 24, 2017, restaurant sales decreased 57.3%, or $5.0 million, to $3.8 million compared to $8.8 million for the comparable period in the prior year. In both cases, the decrease in restaurant sales was primarily a result of decreased store count.
Total cost
General and Administrative Expenses - Total
Total general and administrative expenses decreased to $2.0 million for the three month period ended December 24, 2017 compared to $3.0 million for the three month period ended December 25, 2016 primarily due to decreased expenses resulting from the lower number of Company-owned restaurants and decreased costs in corporate overhead. For the six month period ended December 24, 2017, general and administrative expenses decreased to $4.1 million from $5.5 million in the same period in the prior fiscal year primarily due to decreased expenses resulting from the lower number of Company-owned restaurants and decreased costs in corporate overhead.
General and Administrative Expenses - Company-Owned Restaurants
General and administrative expenses for Company-owned restaurants decreased to $0.3 million for the three month period ended December 24, 2017 compared to $0.7 million in the three month period ended December 25, 2016 primarily as a result of lower store count. General and administrative expenses for Company-owned restaurants decreased to $0.7 million for the six month period ended December 24, 2017 compared to $1.6 million in the six month period ended December 25, 2016 primarily as a result of lower store count.
General and Administrative Expenses - Corporate
General and administrative expenses for corporate decreased to $1.7 million for the three month period ended December 24, 2017 compared to $2.2 million for the three month period ended December 25, 2016. General and administrative expenses for corporate decreased to $3.5 million for the six month period ended December 24, 2017 compared to $3.9 million for the six month period ended December 25, 2016.
year. taxes. The Company utilized net operating losses to offset federal taxes. allowance. accrued expenses. payments received on notes receivable. fiscal 2022. Management believes the cash on hand combined with cash from operations PART II. OTHER INFORMATION September 26, 2021. - Total expenses include selling, general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Franchise expenses remained stable at $0.7 million for the three month periods and $1.3 million for the six month periods ended December 24, 2017 and December 25, 2016 respectively.Franchise Expenses – Pizza InnPizza Inn franchise expenses include general and administrative expenses directly related to the continuing service of the Pizza Inn domestic and international franchises. Franchise expenses remained stable at $0.3 million for the three month periods and $0.6 million for the six month periods ended December 24, 2017 and December 25, 2016 respectively.Franchise Expenses – Pie FivePie Five franchise expenses include general and administrative expenses directly related to the continuing service of domestic and international franchises. Pie Five franchiseFranchise expenses remained stable at $0.4increased to $1.0 million for the three month period ended December 24, 2017 asSeptember 26, 2021 compared to the same period in the prior fiscal year. Pie Five franchise expenses increased slightly to $0.7 million from $0.6 million for the six month period ended December 24, 2017 as compared to the same period in the prior fiscal year.Pre-Opening ExpensesPre-opening expenses decreased to a credit of $1 thousand for the second quarter of fiscal 2018 compared to $47 thousand expense for the same quarter of fiscal 2017. For the six month period ended December 24, 2017, pre-opening expenses were $114 thousand compared to $54 thousand in six month period ended December 25, 2016. Pre-opening expenses are directly related to the number of new store openings, which declined in fiscal 2018.Impairment of Long-lived Assets and Other Lease ChargesImpairment of long-lived assets and other lease charges were $0.5 million for three month period ended December 24, 2017 compared to $5.1 million for the same period in the prior fiscal year.were $0.7 millionwas zero for the sixthree month period ended December 24, 2017September 26, 2021 compared to $5.2 million$17 thousand for the same period in the prior fiscal year. ForThe decline was due to the six month period ended December 24, 2017, these charges related to continuingend of lease termination expenses for nine Pie Five restaurant sites no longer deemed desirable for future restaurant development and lease termination expense for one additional Pie Five restaurant site.
in the second quarter of fiscal 2021.20decreased $0.2 million for the three month period ended December 24, 2017September 26, 2021 decreased $22 thousand as compared to the comparable period in the prior fiscal year. Bad debt expense decreased to $0.2 million for the six month period ended December 24, 2017 as compared to $0.4 million in the comparable period in the prior fiscal year. In the six month period ended December 24, 2017, the Company recognized $0.2 million bad debt expense related to the collectability of a promissory note taken in connection with the prior sale of two Company-owned Pie Five Units to a franchisee.increased to $63 thousandremained stable in the three month period ended December 24, 2017September 26, 2021 compared to $2 thousand during the same fiscal quarterperiod of the prior year. Interest expense was $131 thousand forsixthree month period ended December 24, 2017 as compared to $2 thousand in the comparable period in the prior fiscal year. The increase in interest expense during both the three and six month periodsSeptember 26, 2021 compared to the same fiscal period of the prior fiscal year was primarily related to the interest expense on senior convertible notes issued in the third quarter of fiscal 2017.sixthree months ended December 24, 2017,September 26, 2021, the Company had an income tax benefit of $260 thousand calculated at a 27.5% weighted-average rate consistent with a statutory U.S. federal blended rate offset byrecorded an income tax expense of $246$3 thousand, relatedall of which is attributable to recording a valuation allowance for deferred tax assets of $260 thousand foreign taxes of $6 thousand,current state taxes of $13 thousand and an additional IRS refund of $33 thousand.The Company continues to record a full valuation allowance against its net deferred tax assets. The Company assessed whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, the Company 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 onAs of September 26, 2021, the Company’s review of this evidence at December 24, 2017, management determined thatCompany had established a full valuation allowance of $6.3 million against all of the Company’sits deferred tax assets at December 24, 2017 was appropriate.In December 2017, President Donald Trump signedassets. The Company will continue to review the Tax Cuts and Jobs Act. The new law drops the income tax rateneed for corporations to 21% effective January 1, 2018. Duean adjustment to the tax rate change, the deferred tax assets as of December 24, 2017 were adjusted by $3.3 million and the valuation allowance was adjusted by the same amount. There were approximately 6.0 million of deferred tax assets at December 24, 2017.Discontinued OperationsNet losses from the Norco food and supply distribution division are included within discontinued operations. The discontinuation of the Norco food and supply distribution entity was a strategic shift for the Company during the second quarter of fiscal 2018, releasing the Company from added credit risk, overhead expense, and direct supply and delivery responsibilities. Discontinued operations also includes losses from leased buildings and operating losses associated with Company-owned Pizza Inn restaurants closed in prior years.sixthree month period ended December 24, 2017,September 26, 2021, our primary sourcessource of liquidity werewas cash flowsflow from investing activities and proceeds from the sale of common stock.
operating activities.21increased $1.8 million to cash used of $3.5 millionwas $343 thousand for the sixthree month period ended December 24, 2017 September 26, 2021compared to cash used of $1.6 million$7 thousand for the sixthree month period ended December 25, 2016.September 27, 2020. The primary driversdriver of additionaldecreased cash consumptionflows during the sixthree month period ended December 24, 2017 were lease termination payments for restaurant sites no longer deemed desirable for future development, timing of net working capitalSeptember 26, 2021 was liabilities related to the discontinued Norco food and supply distribution division, and an overall reduction in accounts payable.sixthree month period ended December 24, 2017September 26, 2021 was primarily attributable to payments received on notes receivable of $0.5 million$57 thousand partially offset by $27 thousand used in the purchase of intangible assets definite-lived. Cash used in investing activities during the three month period ended September 27, 2020 of $23 thousand was primarily attributed to the salecapital expenditures of assets of closed Company-owned Pie Five Units$27 thousand partially offset by capital expenditures for a new Company-owned Pie Five Unit. This compares to cash used by investing activities of $0.2 million during the same period$4 thousand in the prior fiscal year attributable to Company-owned Pie Five Units that were under development during the period.providedflow used by financing activities increased to $3.9 millionwas $130 thousand for the sixthree month period ended December 24, 2017September 26, 2021 compared to $1.8 million$3 thousand for the sixthree month period ended December 25, 2016 primarily asSeptember 27, 2020. Cash flows from financing activities for the three months ended September 26, 2021 was attributable to the short term loan. Cash flows from financing activities for the three months ended September 27, 2020 was attributable to equity issuance costs.saleCOVID-19 pandemic, we have taken aggressive measures to control expenses and expect modest cash flow from operations during the second quarter of stock in connection with a shareholder rights offering that closed in September 2017 partially offset by the repayment of a $1.0 million promissory note. On October 27, 2017, the Company filed with the Securities and Exchange Commission (“SEC”) a shelf registration statement on Form S-3 for the offer and sale of up to $5.0 million of its common stock at such time and in such manner as may subsequently be determined appropriate. The registration statement was declared effective by the SEC on November 8, 2017. On December 5, 2017, the Company filed a prospectus supplement pertaining to at-the-market sales of its common stock under the effective registration statement.and proceeds from at-the-market sales of common stock under its shelf registration will be sufficient to fund operations for the next 12 months.concessions.incentives. 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.Inventory consists primarily of food, paper products and supplies stored in and used by Company-owned restaurants and is 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.22andadvertising fund revenues, supplier incentive and convention contribution revenues. LicenseFranchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income 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.retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.continues to record a full valuation allowance against its net deferred tax assets. The Company assessedassesses 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 consideredconsiders both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight wasis given to evidence that couldcan be objectively verified, including recent cumulative losses. Future sources of taxable income wereare also considered in determining the amount of the recorded valuation allowance. BasedCompany’s review of this evidence at December 24, 2017, management determined that a full valuation allowance against alltechnical merits of the Company’s deferredposition. The tax assets at December 24, 2017 was appropriate.In December 2017, President Donald Trump signedbenefits recognized in the Tax Cutsfinancial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of September 26, 2021 and Jobs Act. September 27, 2020, the Company had no uncertain tax positions.new law dropsCompany assesses its exposures to loss contingencies from legal matters based upon factors such as the income tax ratecurrent status of the cases and consultations with external counsel and provides for corporationsthe exposure by accruing an amount if it is judged to 21% effective January 1, 2018. Due tobe probable and can be reasonably estimated. If the tax rate change, the deferred tax assets as of December 24, 2017 were adjusted by $3.3 million and the valuation allowance was adjusted by the same amount. There were approximately 6.0 million of deferred tax assets at December 24, 2017.actual loss from a contingency differs from management’s estimate, operating results could be adversely impacted.December 24, 2017.December 24, 2017,September 26, 2021, the Company has not repurchased any outstanding shares but may make further repurchases under the 2007 Stock Purchase Plan. The Company may also repurchase shares of our common stock other than pursuant to the 2007 Stock Purchase Plan or other publicly announced plans or programs.24Index Amended and Restated By-lawsBylaws of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed January 8, 2015).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). Pledge Agreement (filed as Exhibit 4.2 to Form S-3/A filed January 6, 2017 and incorporated herein by reference). 31.1Rule 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-TS-T.SIGNATURES RAVE RESTAURANT GROUP, INC. (Registrant) (Registrant) By: /s/ Scott Crane Scott CranePresident and Chief Executive Officer(Principal Executive Officer) By: /s/ Timothy E. Mullany Brandon L. Solano Timothy E. MullanyBrandon L. SolanoChief Executive Officer (principal executive officer) By: /s/ Clinton D. Fendley Clinton D. Fendley Chief Financial Officer ( Principal Financial Officer)principal financial officer)Dated: February 6, 2018 26Dated: November 4, 2021