UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-Q


(Mark One)

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
For the quarterly period endedDecember 24, 2017

oSeptember 26, 2021 or


☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to Section 13 or 15(d) of the Securities Exchange Act of 1934

________.


Commission File Number: 0-12919


RAVE RESTAURANT GROUP, INC.


(Exact name of registrant as specified in its charter)


Missouri
45-3189287
(State or other jurisdiction of 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)


(469) 384-5000

(Registrant'sRegistrant’s telephone number,
including area code)

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, $0.01 par value
RAVE
Nasdaq Capital Market

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. Yesþ ☑ Noo

☐


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). Yesþ ☑ Noo

☐


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

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 ☐

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. □

1
☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso ☐ Noþ

☑


As of February 6, 2018, 14,896,208October 26, 2021, 18,004,904 shares of the issuer’s common stock were outstanding.

2


RAVE RESTAURANT GROUP, INC.

Index

PART I. FINANCIAL INFORMATION


PART I. FINANCIAL INFORMATION
   
Item 1.Financial StatementsPage
   
 

Condensed Consolidated Statements of OperationsIncome (unaudited) for the three months ended September 26, 2021 and six month periods

ended December 24, 2017 and December 25, 2016 (unaudited)

September 27, 2020

43
   
 

Condensed Consolidated Balance Sheets at December 24, 2017September 26, 2021 (unaudited)

and June 25, 2017

27, 2021

5

4
   
 

Condensed Consolidated Statements of Cash FlowsShareholders’ Equity (unaudited) for the six month periodsthree months ended

December 24, 2017September 26, 2021 and December 25, 2016 (unaudited)

September 27, 2020

65
 

Supplemental Disclosure of Cash Flow Information for the six month periods ended

December 24, 2017 and December 25, 2016 (unaudited)

6

   
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended September 26, 2021 and September 27, 2020
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
   
Item 2.

Management's

Management’s Discussion and Analysis of

Financial Condition and Results of Operations


1214
   
Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23
Item 4.
Controls and Procedures
23

PART II. OTHER INFORMATION

PART II. OTHER INFORMATION
Item 1.

Legal Proceedings

24
   

Item 1A.

Risk Factors

24
   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24
   
Item 3.
Defaults Upon Senior Securities
24
   
Item 4.

Mine Safety Disclosures

24
   
Item 5.
Other Information
24
   
Item 6.
Exhibits
25
   
Signatures
26


2
3Index

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements


RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

INCOME

(In thousands, except per share amounts)

(Unaudited)

       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 
  
September 26,
2021
  
September 27,
2020
 
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 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3
4Index


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. 

6

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)

  
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 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4
Index
RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

  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 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5
Index
RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

  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 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6
Index
RAVE RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”) operates and franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants 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, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. The accompanying condensed consolidated financial statements of Rave Restaurant Group, Inc. (the "Company") have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2017.

27, 2021.


In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company'sCompany’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments are of a normal recurring nature. Results of operations for the fiscal periods presented are not necessarily indicative of fiscal year-end results.

(1)Summary of Significant Accounting Policies



Note A - Summary of Significant Accounting Policies

Principles of Consolidation

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


Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.


Fiscal Quarters

The three and six month periods ended December 24, 2017September 26, 2021 and December 25, 2016,September 27, 2020 each contained 13 weeks and 26 weeks, respectively.

Revenue Recognition

The Company recognizes revenue when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. 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.

7
weeks.


Use of Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company’s management to make estimates and assumptions that affect its reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and other various assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed periodically, and actual results could differ materially from estimates.

Reclassification

Certain items have been reclassified


Revenue Recognition

Revenue is measured based on consideration specified in contracts with customers and excludes incentives and amounts collected on behalf of third parties, primarily sales tax. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

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

Franchise Revenues

Franchise revenues consist of 1) franchise royalties, 2) supplier and distributor incentive revenues, 3) franchise license fees, 4) area development exclusivity fees and foreign master license fees, 5) advertising funds, and 6) supplier convention funds.

Franchise royalties, which are based on a percentage of franchise restaurant sales, are recognized as sales occur.

Supplier and distributor incentive revenues are recognized when title to the underlying commodities transfer.

Franchise license fees are typically billed upon execution of the franchise agreement and amortized over the term of the franchise agreement which can range from five to twenty years. Fees received for renewal periods are amortized over the life of the renewal period.

7
Index
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 Condensed 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 subfranchise are amortized as revenue over the term of the contract.

Advertising fund contributions for Pie Five and Pizza Inn franchised units represent contributions collected where we have control over the activities of the fund. Contributions are based on a percentage of net retail sales. The adoption of Topic 606 revised the determination of whether these arrangements are considered principal versus agent. For Pie Five and Pizza Inn, we have determined that we are the principal in these arrangements, and advertising fund contributions and expenditures are, therefore, reported on a gross basis in the Condensed Consolidated Statements of Income. In general, we expect such advertising fund contributions and expenditures to be largely offsetting and, therefore, do not expect a significant impact on our reported income before income taxes. Our obligation related to these funds is to develop and conduct advertising activities. Pie Five and Pizza Inn marketing fund contributions are billed and collected weekly.

Recognition of supplier convention funds is deferred until the obligations of the agreements are met and the event takes place.

Rental Income

The Company also subleases some of its restaurant space to third parties. The Company’s 2 subleases have terms that end in 2023 and 2025. The sublease agreements are noncancelable through the end of the term and both parties have substantive rights to terminate the lease when the term is complete. Sublease agreements are not capitalized and are recorded as rental income in the period that rent is received.

Total revenues consist of the following (in thousands):

  Three Months Ended 
  
September 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 

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.

Compensation cost for restricted stock units (“RSUs”) is measured as an amount equal to the fair value of the RSUs on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on the best estimate of the ultimate achievement level.

8

Note B - Leases


The Company determines if an arrangement is a lease at inception of the arrangement. To the extent that it can be determined that an arrangement represents a lease, it is classified as either an operating lease or a finance lease. The Company does not currently have any finance leases. The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right of use asset and a corresponding operating lease liability. Right of use assets represent the Company’s right to use an underlying asset for the lease term and operating 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.

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 financial statements to conformlease commencement less any lease incentives and initial direct costs incurred. Lease expense 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 current financial statement presentation.

Discontinuationsupport its operations. A more detailed description of Norco Distribution Division

Duringsignificant 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 ten years. The Company has concluded that its office agreements represent operating leases with a lease term that equals the fiscal quarter ended December 24, 2017,primary non-cancelable contract term. Upon completion of the Company discontinued its Norco distribution division and revised its arrangements with third party suppliers and distributors of food, equipment and supplies.primary term, both parties have substantive rights to terminate the lease. As a result, saleenforceable 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 food,one to ten 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 2 subleases have terms that end in 2023 and 2025. The sublease agreements are noncancelable through the end of the term and both parties have substantive rights to terminate the lease when the term is complete. Sublease agreements are not capitalized and are recorded as rental income in the period that rent is received.

As of September 26, 2021, the Company had 0 Company-owned restaurants.

Information Technology Equipment

The Company rents information technology equipment, primarily printers and suppliescopiers, 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 no longer recognizedrequired to use its 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.

9
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 revenuea 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 costunderlying asset that the Company is reasonably certain to exercise). Accordingly, we recognize lease payments related to our short-term leases in our condensed consolidated statement of such itemsincome 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 condensed consolidated statement of income in the period in which the obligation for those payments is no longerincurred.

The components of total lease expense for the three months ended September 26, 2021, the majority of which is included in costgeneral and administrative expense, are as follows (in thousands):

  Three Months Ended 
  September 26, 2021 
Operating lease cost $125 
Rental income  (47)
Total lease expense, net of sublease income $78 

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

Three Months Ended
September 26, 2021
Cash paid for amounts included in the measurement of lease liabilities$138

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

September 26, 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 
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 


Note C - Stock Purchase Plan

On May 23, 2007, the Company’s board of sales. Thedirectors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase of up to 1,016,000 shares of its 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 now recognizes incentive revenues received from third party suppliers and distributors as revenue.

(2)Commitments and Contingencies

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.


10
Index

Note D - 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 the Company.

(3)       



Note E - Stock-Based Compensation


Stock Options:


For the three month periodfiscal quarters ended December 24, 2017,September 26, 2021 and December 25, 2016,September 27, 2020, the Company recognizeddid 0t recognize any stock-based compensation expense related to stock options of $10 thousand and $25 thousand, respectively. For the six month period ended December 24, 2017 and December 25, 2016, the Company recognized stock-based compensation expense related to stock options of $19 thousand and $50 thousand, respectively.options. As of December 24, 2017,September 26, 2021, there was 0 unamortized stock-based compensation expense related to stock options was $16 thousand.

options.


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


8


  Three Months Ended 
  
September 26,
2021
  
September 27,
2020
 
  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 


Restricted Stock Units:


For the three month periodsmonths ended December 24, 2017,September 26, 2021 and December 25, 2016,September 27, 2020, the Company recognized $0 and $20 thousand inhad stock-based compensation expense of $42 thousand and 0, respectively, related to RSU’s. For the six month period ended December 24, 2017, and December 25, 2016, the Company recognized $0 and $40 thousand in stock-based compensation expense related to RSU’s.RSUs. As of December 24, 2017,September 26, 2021, there was 0 unamortized stock-based compensation expense related to RSU’s was $0 because the Company determined that the probability of achieving the minimum performance criteria was remote.

RSUs.


A summary of the status of restricted stock units as of December 24, 2017,September 26, 2021, and changes during the fiscal six month periodthree months then ended is presented below:


 Number of Restricted Stock Units 
Unvested at June 27, 2021
 545,600 
Granted0
Issued
0
Forfeited(22,412)
Unvested at June 25, 2017 September 26, 2021
 487,950
 Granted  -
 Vested 523,188 -
 Forfeited        (34,730)
 Unvested at December 24, 2017        453,220


11
(4)Earnings per Share (EPS)Index


Note F - Earnings per Share (EPS)

The following table shows the reconciliation of the numerator and denominator of the basic EPS calculation to the numerator and denominator of the diluted EPS calculation (in thousands, except per share amounts).

 Three Months Ended Six Months Ended
 December 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 shares14,344 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

For the three and six months period ended December 24, 2017, September 26, 2021, options to purchase 478,056166,750 shares of common stock at exercise prices ranging from $1.87$3.11 to $13.11 were excluded from the computation of diluted EPS because their inclusion would have been anti-dilutive.

9

(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.



Note G - Income Taxes

For the three months ended 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.

taxes. The Company utilized net operating losses to offset federal taxes.


The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. 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 allits deferred tax assets. The Company will continue to review the need for an adjustment to the valuation allowance.


Note H - Segment Reporting

The Company has 3 reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information: (1) Pizza Inn Franchising, (2) Pie Five Franchising and (3) Company-Owned Restaurants. These segments are a result of differences in the nature of the Company’s deferred tax assets at December 24, 2017 was appropriate.

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.


The Pizza Inn and the valuation allowance was adjusted by the same amount. There were approximately 6.0 million of deferred tax assets at December 24, 2017.

10

 (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.

(8)Segment Reporting

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.


The Company-Owned Restaurant 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.

Revenue for corporate administration and other consists of rental income and interest income.  Assets primarily include cash and short-term investments, as revenue.

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.


12
Index
Summarized in the following tablestable are net sales and operating revenues, operatingdepreciation and amortization expense, and income and geographic information (revenues)before taxes, for thesethe Company’s reportable segments as of the three months ended September 26, 2021 and September 27, 2020 (in thousands):

  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 


Note I - Subsequent Events

On November 1, 2021, the U.S. District Court for the threeEastern District of Texas entered judgment against the Company in the amount of $924,000 plus pre- and six month periods ended December 24, 2017post-judgment interest and December 25, 2016 (in thousands). Operating income reported below excludes income tax provision and discontinued operations.

   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. 

court costs on breach of contract claims asserted by the Company’s former Chief Executive Officer, Scott Crane.  The Company intends to appeal the judgment to the Fifth Circuit Court of Appeals.

13
11Index

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


The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 25, 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.


Results of Operations

Overview


Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”) operates and franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants domestically and internationally under the trademark “Pizza Inn” and operates 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:

 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 

following:

Three Months Ended September 26, 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  133  $20,347   33  $5,060   166  $25,407 
                         
International Franchised  32       —       32     

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12Index

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 lossnet income per common share improved $0.70increased $0.02 per share to a loss of $0.04$0.02 per share for the three month periodmonths ended December 24, 2017,September 26, 2021, compared to a lossbasic net income of $0.74$0.00 per share in the comparable period in the prior fiscal year. The Company had a net lossincome of $0.6 million$285 thousand for the three month periodmonths ended December 24, 2017, andSeptember 26, 2021 compared to net lossincome of $7.9 million$76 thousand in the comparable period in the prior fiscal year, on revenues of $4.2$2.6 million for the three month periodmonths ended December 24, 2017September 26, 2021 compared to $6.8$1.9 million in the comparable period in the prior fiscal year. The decreaseincrease in net loss from prior yearrevenue was primarily due to increases in franchise royalties, advertising funds contributions, and supplier convention funds.

COVID-19 Pandemic

On March 11, 2020, the closingWorld Health Organization declared the outbreak of poorly preforming stores, lower closed store expenses, increased gainsnovel 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 carryout 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, a labor shortage in restaurant service workers, 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 saletime to time during the pandemic. We have not experienced any significant shortages of assets, lower impairment expenses , lower lease termination costs and reduced general and administrative expenses.

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.


The COVID-19 pandemic has resulted in the prior fiscal year. Net lossdramatically 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 by $8.5 million from $9.4 million to $0.9 million in the six month period ended December 24, 2017 as comparedaggregate retail sales have correspondingly decreased supplier rebates and franchise royalties payable to the same period inCompany. During the prior year. The decrease in net loss from prior year was primarily due to the closing of poorly preforming stores, lower closed store expenses, increased gains from sale of assets, lower impairment expenses ,lower lease termination costs and reduced general and administrative expenses.

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.

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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.


We expect that some Buffet Units and Pie Five Units duringcould 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 three month period ended December 24, 2017 was primarilypandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent off-premises dining will continue, to what extent the result of the closure of poor-performing stores, which we believelabor shortage will provide a stronger foundation for future brand growth. We believe that the net increase of eight franchisedcontinue, if individuals will be comfortable returning to our Buffet Units and Pie Five Units following social distancing protocols, or if distributions of supply chains will cause difficulty in obtaining inventories or supplies in the three month period ended December 24, 2017 is a demonstrationforeseeable future. Any of brand strengththese 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 strategic commitment to franchise operations.

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 RestaurantsThree 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)

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liquidity cannot presently be predicted.

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.

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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

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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.


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Index
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 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, 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 and discontinued operations.costs.

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

·●“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 and other lease charges, and (6)(3) 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 primarilyFranchisee default and closed store revenue/expense” represents the net of certainaccelerated revenues and costs incurred priorattributable to the opening of a restaurant, including: (1) marketingdefaulted area development agreements and promotional expenses, (2) accrued rent, and (3) manager salaries, employee payroll and related training costs.closed franchised stores.

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Adjusted EBITDA

Financial Results

During


Adjusted EBITDA for the fiscal quarter ended December 24, 2017,September 26, 2021 increased $0.3 million compared to the Company discontinued its Norco distribution divisionsame period of the prior fiscal year. The following table sets forth a reconciliation of net income to Adjusted EBITDA for the periods shown (in thousands):

RAVE RESTAURANT GROUP, INC.
ADJUSTED EBITDA
(In thousands)

  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 

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Pizza Inn Brand Summary

The following tables summarize certain key indicators for the Pizza Inn franchised and revised its arrangements withlicensed domestic units that management believes are useful in evaluating performance:

  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 

Total Pizza Inn domestic retail sales increased $4.0 million, or 24.7%, for the three months ended September 26, 2021 when compared to the same period of the prior year. Pizza Inn domestic comparable store retail sales increased by $4.0 million, or 25.0%, for the three months ended September 26, 2021 when compared to the same period of the prior year.

The following chart summarizes Pizza Inn unit activity for the three months ended September 26, 2021:

  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 

There was a net decrease of two domestic Pizza Inn units during the three months ended September 26, 2021. We believe the net closure of Pizza Inn units will continue in the near term and eventually reverse in future periods. During the quarter, the number of international Pizza Inn units remained stable.  We expect international units to increase modestly in future periods.

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Pie Five Brand Summary

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

  Three Months Ended 
  
September 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 

Pie Five system-wide retail sales increased $0.6 million, or 12.3%, for the three months ended September 26, 2021 when compared to the same period of the prior year. Pie-Five comparable store retail sales increased by $0.7 million, or 17.5%, for the three months ended September 26, 2021 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 39 to 33.

The following chart summarizes Pie Five Unit activity for the three months ended September 26, 2021:

  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 

Pie Five units remained stable during the three months ended September 26, 2021. We believe that Pie Five units will eventually increase in future periods.

Pie Five - Company-Owned Restaurants

We closed our single remaining Company-owned Pie Five restaurant during the third party suppliers and distributorsquarter of food, equipment and supplies. As afiscal 2020. Loss from continuing operations before taxes for Company-owned Pie Five stores decreased $99 thousand for the three months ended September 26, 2021 to $1 thousand compared to $100 thousand during the same period of the prior year.  The decreased loss was the result sale of food, equipment and supplies is no longer recognized as revenue and the costclosure of such items is no longer included in cost of sales. all remaining Company-owned restaurants.

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Financial Results

The Company now recognizes incentive revenues received from third party suppliers and distributors as revenue.

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 

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Revenues:

Revenues:


Revenues are derived from (1) franchise royalties, franchise license fees, supplier and distributor incentives, advertising funds, area development exclusivity fees and foreign master license fees, and supplier incentives, and (2) Company-owned restaurant operations.convention funds. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales and restaurant count, and the products sold to franchisees through third-party food distributors.

distributors.


Total revenues for the three month period ended December 24, 2017September 26, 2021 and for the same period in the prior fiscal year were $4.2$2.6 million and $6.8$1.9 million, respectively. Total revenues for the six month period ended December 24, 2017 was $9.6 million compared to $14.2 millionThe increase in the same period in the prior fiscal year. The decrease in total revenues in both the three and six month periodsrevenue was primarily driven by the reductiondue to increases in the number of Company-owned stores.

franchise royalties, advertising funds contributions, and supplier convention funds.


Pizza Inn Franchise Revenues


Pizza Inn franchise and license revenues decreasedincreased by $0.1$0.7 million to $1.7 million from $1.8$2.0 million for the three month period ended December 24, 2017September 26, 2021 as compared to the same period in the prior fiscal year. Pizza Inn franchise revenues decreased to $3.5 million for the six month period ended December 24, 2017 from $3.7 million for the same period of the prior fiscal year. The decreaseincrease was driven by increases in both the threesupplier incentives, domestic royalties and six month periods was primarily the result of reduced retail sales, largely attributable to closure of under-performing stores.

advertising fund revenues.


Pie Five Franchise Revenues


Pie Five franchise and license revenues were flat year over yearremained relatively stable at $0.9$0.5 million for the three month period ended December 24, 2017September 26, 2021 as compared to the same period in the prior fiscal year. Pie Five franchise revenues increased to $2.4 million for the six month period ended December 24, 2017 from $1.8 million for the same period of the prior fiscal period, primarily driven by the recognition of a set up fee for the first international franchisee.

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. 


Costs and Expenses:


Cost of Sales - Total

Total cost


Cost of sales, which primarily includes food and supply costs, labor, and general and administrative expenses directly related to Company-owned restaurant sales, decreased to $1.1zero for the three month period ended September 26, 2021 from the $78 thousand in the three month period ended September 27, 2020. The decrease in costs of sales in the three month period reflects the closure of the single remaining Company-owned restaurant and the end of associated general and administrative expenses (primarily rent and utilities) attributable to closed stores.

General and Administrative Expenses

Total general and administrative expenses increased $0.1 million to $1.2 million for the three month period ended December 24, 2017September 26, 2021 compared to $3.9$1.1 million infor the three monthsame period ended December 25, 2016. Forof the six month period ended December 24, 2017, total cost of sales decreased to $3.1 million from $8.3 million.prior fiscal year. The decreases in costs in both three and six month periods wereincrease was primarily the result decreased Company-owned store count.

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. 

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increased advertising spend.


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. 

Franchise Expenses - Total


Franchise 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 Inn

Pizza 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 Five

Pie 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 Expenses

Pre-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 Charges

Impairment 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.


Loss (Gain) on Sale of Assets

We had no sale of assets in either the fiscal quarter ended September 26, 2021 or the comparable fiscal quarter ended September 27, 2020.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges 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.

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in the second quarter of fiscal 2021.


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 decreased $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.


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Interest Expense


Interest expense 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 for

Depreciation and Amortization Expense

Depreciation and amortization remained stable in the sixthree 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.

year.


Provision for Income Tax


For the 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.

taxes. The Company utilized net operating losses to offset federal taxes.


The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. 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 Operations

Net 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.

allowance.


Liquidity and Capital Resources


During the 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.

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operating activities.



Cash flows from operating activities generally reflect net income or losses adjusted for certain non-cash items including depreciation and amortization, changes in deferred tax assets, share based compensation, and changes in working capital. Cash used by operating activities increased $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.

accrued expenses.


Cash flows from investing activities reflect net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash provided by investing activities of $19 thousand during the 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.

payments received on notes receivable.


Cash flows from financing activities generally reflect changes in the Company's stock and debt activity during the period. Net cash 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.

As a result of the 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.

fiscal 2022. Management believes the cash on hand combined with cash from operations 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.


2017 ATM Offering

On December 5, 2017, the Company entered into an At Market Issuance Sales Agreement with B. Riley FBR, Inc. (“B. Riley FBR”) pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $5,000,000 from time to time through B. Riley FBR acting as agent (the “2017 ATM Offering”). The 2017 ATM Offering has been undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which was declared effective by the SEC on November 6, 2017. Through September 26, 2021, the Company had sold an aggregate of 3,064,342 shares in the 2017 ATM Offering, realizing aggregate gross proceeds of $4.4 million. The 2017 ATM Offering expired on November 6, 2020.

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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 notes to common stock as of the 15th day of any calendar month, unless the Company sooner elects to redeem the 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.

During the three month period ended September 26, 2021, none of the Notes were converted to common shares. As of September 26, 2021, $1.6 million in par value of the Notes were outstanding, offset by $13 thousand of unamortized debt issue costs and unamortized debt discounts.

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.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed periodically. Actual results could differ materially from estimates.


The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and therefore require subjective judgments. Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.


Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions.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.


The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to their carrying value. If impairment is recognized, the carrying value of an impaired asset is reduced to its fair value, based on discounted estimated future cash flows.

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Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, andadvertising 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.


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 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. Based

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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 Company’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.


The 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk


Not required for a smaller reporting company.


Item 4. Controls and Procedures


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


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


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PART II. OTHER INFORMATION


Item 1. Legal Proceedings


On January 6, 2020, the Company’s former Chief Executive Officer, Scott Crane, filed suit in the U.S. District Court for the Eastern District of Texas alleging various claims in connection with the Company’s termination of his employment in July 2019.  In general, the suit asserted that the Company terminated Mr. Crane for the purpose of depriving him of certain equity compensation that would otherwise have become due to him on October 15, 2019.  The case proceeded to a jury trial, which resulted in a verdict in favor of Crane on his breach of contract claim.  On November 1, 2021, the Court entered judgment against the Company in the amount of $924,000 plus pre- and post-judgment interest and court costs.  The Company intends to appeal the judgment to the Fifth Circuit Court of Appeals.

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


Item 1A. Risk Factors


Not required for a smaller reporting company.


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


On May 23, 2007, the 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 repurchases in the fiscal quarter ended December 24, 2017.

September 26, 2021.


The Company’s ability to repurchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the SEC. Subsequent to 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.


Item 3. Defaults upon Senior Securities


Not applicable.


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information

Not applicable.


None.

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Item 6. Exhibits


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

3.2
Amended and Restated By-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).

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
Supplemental Indenture Number 1 dated as of October 31, 2017, between Rave Restaurant Group, Inc. and Securities Transfer Corporation (filed as Exhibit 4.1 to Form 8-K filed November 9, 2017 and incorporated herein by reference).

10.1
31.1
At Market Issuance Sales Agreement between Rave Restaurant Group, Inc. and B. Riley FBR, Inc. dated December 5, 2017 (filed as Exhibit 1.1 to Form 8-K filed December 5, 2017 and incorporated herein by reference).

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

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

32.1
Section 1350 Certification of Principal Executive Officer.

32.2
Section 1350 Certification of Principal Financial Officer.

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


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SIGNATURES

SIGNATURES 


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


 RAVE RESTAURANT GROUP, INC.
  (Registrant)
 
 (Registrant) 
 
By:   /s/ Scott Crane  
Scott Crane
President and Chief Executive Officer
(Principal Executive Officer)
   
 By:/s/ Timothy E. Mullany     Brandon L. Solano
  Timothy E. MullanyBrandon L. Solano
Chief 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

 26
Dated: November 4, 2021