Quarterly report [Sections 13 or 15(d)]



bgcolor="#ffffff" style="font-family: 'Times New Roman'; font-size: 10pt; text-align: left; color: #000000;">







SECURITIES AND EXCHANGE COMMISSION


Washington, D. C. 20549






FORM 10-Q






(Mark One)
















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



For the quarterly period ended

December 27, 2020















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







Commission File Number: 0-12919






RAVE RESTAURANT GROUP, INC.


(Exact name of registrant as specified in its charter)


















Missouri




45-3189287



(State or other jurisdiction of Incorporation or organization)




(I.R.S. Employer Identification No.)







3551 Plano Parkway


The Colony, Texas 75056


(Address of principal executive offices)






(469) 384-5000


(Registrant’s telephone number,


including area code)


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






















Title of each class




Trading 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. Yes ☑ No ☐






Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐






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




















Large accelerated filer ☐



Accelerated filer ☐



Non-accelerated filer ☑



Smaller reporting company ☑



Emerging growth company ☐










If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






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






As of January 22, 2021, 18,004,904 shares of the issuer’s common stock were outstanding.

















RAVE RESTAURANT GROUP, INC.






Index


































































































































































































































PART I. FINANCIAL INFORMATION








Item 1.





Financial Statements





Page












3











4











5











6











7







Item 2.





14






Item 3.





25






Item 4.






25







PART II. OTHER INFORMATION







Item 1.





26






Item 1A.





26






Item 2.





26






Item 3.





26






Item 4.






26







Item 5.





26






Item 6.





27









28







PART I. FINANCIAL INFORMATION







Item 1. Financial Statements







RAVE RESTAURANT GROUP, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


(Unaudited)










































































































































































































































































































































































































































































































Three Months Ended





Six Months Ended






December 27,


2020





December 29,


2019





December 27,


2020





December 29,


2019




REVENUES:




$



2,128





$



2,830





$



4,031





$



5,706





















COSTS AND EXPENSES:



















Cost of sales





75






115






153






249




General and administrative expenses





1,185






1,565






2,274






2,928




Franchise expenses





606






838






1,153






1,704




Gain on sale of assets


























(11



)



Impairment of long-lived assets and other lease charges





4






193






21






341




Bad debt expense





88






36






115






28




Interest expense





23






24






46






51




Depreciation and amortization expense





43






49






87






96




Total costs and expenses





2,024






2,820






3,849






5,386





















INCOME BEFORE TAXES





104






10






182






320




Income tax expense (benefit)





2






(4



)





4






69




NET INCOME





102






14






178






251





















INCOME PER SHARE OF COMMON STOCK - BASIC:




$



0.01





$



0.00





$



0.01





$



0.02





















INCOME PER SHARE OF COMMON STOCK - DILUTED:




$



0.01





$



0.00





$



0.01





$



0.02





















Weighted average common shares outstanding - basic





17,712






15,129






16,596






15,106





















Weighted average common and potential dilutive common shares outstanding





18,510






15,930






17,394






15,924








See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.







RAVE RESTAURANT GROUP, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except share amounts)


(Unaudited)




















































































































































































































































































































































































































































































































































December 27,


2020





June 28,


2020




ASSETS









CURRENT ASSETS









Cash and cash equivalents




$



6,292





$



2,969




Restricted cash





235






234




Accounts receivable, less allowance for bad debts of $166 and $269, respectively





919






965




Notes receivable





1,006






546




Deferred contract charges





35






44




Prepaid expenses and other





261






174




Total current assets





8,748






4,932













LONG-TERM ASSETS











Property, plant and equipment, net





324






366




Operating lease right of use asset, net





3,274






3,567




Intangible assets definite-lived, net





136






155




Notes receivable, net of current portion





65






449




Long-term deferred contract charges





232






231




Deposits and other












5




Total assets




$



12,779





$



9,705













LIABILITIES AND SHAREHOLDERS’ EQUITY











CURRENT LIABILITIES











Accounts payable – trade




$



649





$



446




Accounts payable - lease termination impairments












407




Accrued expenses





791






775




Operating lease liability, current





658






632




Deferred revenues





155






254




Total current liabilities





2,253






2,514













LONG-TERM LIABILITIES











Convertible notes





1,562






1,549




PPP loan





657






657




Operating lease liability, net of current portion





3,138






3,471




Deferred revenues, net of current portion





806






960




Other long-term liabilities





51






51




Total liabilities





8,467






9,202













COMMITMENTS AND CONTINGENCIES (SEE NOTE D)




















SHAREHOLDERS’ EQUITY











Common stock, $.01 par value; authorized 26,000,000 shares; issued 25,090,058 and 22,550,376 shares, respectively; outstanding 18,004,904 and 15,465,222 shares,
respectively





251






225




Additional paid-in capital





37,136






33,531




Accumulated deficit





(8,538



)





(8,716



)



Treasury stock at cost











Shares in treasury: 7,085,154 and 7,085,154, respectively





(24,537



)





(24,537



)



Total shareholders’ equity





4,312






503













Total liabilities and shareholders’ equity




$



12,779





$



9,705








See accompanying Notes to Unaudited Condensed Consolidated Financial Statement.







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 30, 2019





22,208





$



222





$



33,327





$



(4,483



)





(7,117



)




$



(24,632



)




$



4,434

































Conversion of senior notes, net



















(31



)












32






95






64




Equity issue costs - ATM offering



















(2



)


























(2



)



Net income


























237




















237




Balance, September 29, 2019





22,208





$



222





$



33,294





$



(4,246



)





(7,085



)




$



(24,537



)




$



4,733

































Stock compensation expense



















(85



)


























(85



)



Issuance of common stock





9














































Equity issue costs - ATM offering



















1



























1




Net income


























14




















14




Balance, December 29, 2019





22,217






222





$



33,210





$



(4,232



)





(7,085



)




$



(24,537



)




$



4,663












































































































































































































































































































































































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



















(3



)


























(3



)



Net income


























76




















76




Balance, September 27, 2020





22,550





$



225





$



33,528





$



(8,640



)





(7,085



)




$



(24,537



)




$



576

































Issuance of common stock





2,540






26






3,735



























3,761




Equity issue costs - ATM offering



















(127



)


























(127



)



Net income


























102




















102




Balance, December 27, 2020





25,090





$



251





$



37,136





$



(8,538



)





(7,085



)




$



(24,537



)




$



4,312








See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.







RAVE RESTAURANT GROUP, INC.


CONDENSED CONSOLIDATED



STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)








































































































































































































































































































































































































































































































































































































Six Months Ended






December 27,


2020





December 29,


2019




CASH FLOWS FROM OPERATING ACTIVITIES:









Net income




$



178





$



251




Adjustments to reconcile net income to cash (used in) provided by operating activities:











Impairment of long-lived assets and other lease charges





21






341




Stock compensation expense












(85



)



Depreciation and amortization





87






96




Amortization of right of use assets





293






230




Amortization of debt issue costs





13






15




Gain on the sale of assets












(11



)



Provision for bad debt





115






28




Deferred income tax












60




Changes in operating assets and liabilities:











Restricted cash





(1



)










Accounts receivable





(69



)





126




Notes receivable





(102



)










Deferred contract charges





8






(2



)



Inventories












1




Prepaid expenses and other





(87



)





59




Deposits and other





5











Accounts payable – trade





203






(35



)



Accounts payable - lease termination impairments





(428



)





(658



)



Accrued expenses





17






(2



)



Operating lease liability





(307



)





(241



)



Deferred revenue





(253



)





(505



)



Deferred rent and other












(21



)



Cash used in operating activities





(307



)





(353



)












CASH FLOWS FROM INVESTING ACTIVITIES:











Payments received on notes receivable from fixed asset sales





26






108




Purchase of property, plant and equipment





(26



)





(47



)



Cash provided by investing activities












61













CASH FLOWS FROM FINANCING ACTIVITIES:











Proceeds from sale of stock





3,761











Equity issuance costs





(130



)





(1



)



Cash (used in) provided by financing activities





3,631






(1



)












Net (decrease)/increase in cash, cash equivalents and restricted cash





3,324






(293



)



Cash, cash equivalents and restricted cash, beginning of period





3,203






2,264




Cash, cash equivalents and restricted cash, end of period




$



6,527





$



1,971













SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION




















CASH PAID FOR:











Interest




$









$



2




Income taxes




$



16





$



18













Non-cash activities:











Conversion of notes to common shares




$









$



64




Operating lease right of use assets at adoption of ASC 842




$









$



3,428




Operating lease liability at adoption of ASC 842




$









$



3,875








See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.







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. have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements have been omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial
statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2020.






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






Note A - Summary of Significant Accounting Policies






Principles of Consolidation


The consolidated financial statements include the accounts of 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. Restricted cash of $0.2 million at December 27, 2020 and
June 28, 2020 is omitted from cash and cash equivalents and is included in current assets.  The restricted cash is held in an interest-bearing money market account and is restricted pursuant to a letter of credit for an insurance claim dating back
to the mid-1980’s.






Fiscal Quarters


The three and six month periods ended December 27, 2020 and December 29, 2019 each contained 13 weeks and 26 weeks, respectively.






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.






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:







Restaurant Sales







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







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, 6) supplier convention funds, and 7) rental income.







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






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






Franchise license fees are typically billed upon execution of the franchise agreement and amortized over the term of the franchise agreement which can range from five to 20 years. Fees received for
renewal periods are amortized over the life of the renewal period.






Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign master license agreements. Area development exclusivity fees
are included in deferred revenue in the 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 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, 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 Operations. In general, we expect such advertising fund contributions and expenditures to be largely offsetting and, therefore, do not expect a
significant impact on our reported income before income taxes. Our obligation related to these funds is to develop and conduct advertising activities. Pie Five marketing fund contributions are billed and collected weekly.






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







Rental Income







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






Total revenues consist of the following (in thousands):







































































































































Three Months Ended






December 27,


2020





December 29,


2019




Restaurant sales




$









$



96




Franchise royalties





847






1,028




Supplier and distributor incentive revenues





808






1,033




Franchise license fees





80






410




Area development exclusivity fees and foreign master license fees





4






6




Advertising funds





150






132




Supplier convention funds





177






63




Rental income





52






48




Other





10






14






$



2,128





$



2,830


















































































































































Six Months Ended






December 27,


2020





December 29,


2019











Restaurant sales




$









$



204




Franchise royalties





1,705






2,136




Supplier and distributor incentive revenues





1,575






2,056




Franchise license fees





182






621




Area development exclusivity fees and foreign master license fees





8






13




Advertising funds





275






284




Supplier convention funds





177






278




Rental income





100






89




Other





9






25






$



4,031





$



5,706









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 (“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.






Note B - Adoption of ASC 842, “Leases”






In February 2016, FASB issued Accounting Standards Codification 842, Leases (“ASC 842”) which requires an entity to recognize a right of use asset and lease liability for all leases. Classification of
leases as either a finance or operating lease determines the recognition, measurement and presentation of expenses.






The new standard was effective for the Company in the first quarter of fiscal 2020 and was adopted using a modified retrospective approach with the date of initial application on July 1, 2019.
Consequently, upon transition, the Company recognized an operating lease right of use asset and an operating lease liability.






The Company applied the following practical expedients as provided in the standards update which provide elections to:














not apply the recognition requirements to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option);















not reassess whether a contract contains a lease, lease classification and initial direct costs; and















not reassess certain land easements in existence prior to July 1, 2019.







Through the implementation process, the Company evaluated each of its lease arrangements and enhanced its systems to track and calculate additional information required upon adoption of this standards
update. The adoption had an impact to the Condensed Consolidated Balance Sheet as of July 1, 2019 relating to the recognition of operating lease right of use assets and operating lease liabilities which represented approximately a 30% change to
total assets and a 64% change to total liabilities. The impact of adoption of this new standards update was as follows (in thousands):



































































July 1, 2019











Adoption




Reclassification (1)





Total Adjustment




Operating lease right of use assets




$



3,428




$



434




$



3,862




Operating lease liabilities – current





528








528




Operating lease liabilities - long-term





3,347








3,347













(1)


As of June 30, 2019, the Company had $132 thousand recorded within deferred rent for lease incentives incurred at the inception of the affected leases and $302 thousand in deferred rent tenant improvements.
Upon adoption of the new standards update, these lease incentives were included within the lease liability.







Adoption of the new standard did not materially impact the Condensed Consolidated Statements of Operations, Cash Flows or Shareholders’ Equity.







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 to lease 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 support its operations. A more detailed description of significant lease
types is included below.







Office Agreements







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







Restaurant Space Agreements







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






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







Information Technology Equipment







The Company rents information technology equipment, primarily printers and copiers, from a third party for its corporate office location. Information technology equipment agreements are typically
structured with non-cancelable terms of one to five years. The Company has concluded that its information technology equipment commitments are operating leases.







Discount Rate







Leases typically do not provide an implicit rate. Accordingly, the Company is required to use 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.







Lease Guarantees







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







Practical Expedients and Accounting Policy Elections







Certain lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, the Company has utilized the practical expedient that exempts it from
separating lease components from non-lease components. Accordingly, the Company accounts for the lease and non-lease components in an arrangement as a single lease component.






In addition, for all existing asset classes, the Company has made an accounting policy election not to apply the lease recognition requirements to short-term leases (that is, a lease that, at
commencement, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise). Accordingly, we recognize lease payments related to our short-term leases in
our statement of operations on a straight-line basis over the lease term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those payments in our statement of operations in the
period in which the obligation for those payments is incurred.







The components of total lease expense for the six months ended December 27, 2020, the majority of which is included in general and administrative expense, are as follows (in thousands):














































Six Months Ended







December 27, 2020




Operating lease cost




$



367




Sublease income





(99



)



Total lease expense, net of sublease income




$



268








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

























Six Months Ended





December 27, 2020




Cash paid for amounts included in the measurement of lease liabilities



$



388








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




























December 27, 2020




Weighted average remaining lease term




5.0 Years




Weighted average discount rate




4.0



%







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














































































Operating Leases








Remainder of fiscal year 2021




$



398




2022





804




2023





813




2024





766




Thereafter





1,448




Total operating lease payments




$



4,229




Less: imputed interest





(433



)



Total operating lease liability




$



3,796








Note C - Stock Purchase Plan






On May 23, 2007, the Company’s board of directors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase 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 may repurchase by 1,000,000 shares to a total
of 2,016,000 shares. On April 22, 2009, the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 3,016,000 shares. The
2007 Stock Purchase Plan does not have an expiration date. There were no stock purchases in the fiscal quarters ended December 27, 2020 or December 29, 2019.






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’s annual results of operations or financial condition if
decided in a manner that is unfavorable to the Company.







COVID-19 Pandemic






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






The COVID-19 pandemic has resulted in dramatically reduced aggregate in-store retail sales at Buffet Units and Pie Five Units, modestly offset by increased aggregate carry-out
and delivery sales. The decreased aggregate retail sales have correspondingly decreased supplier rebates and franchise royalties payable to the Company. During the fourth quarter of fiscal 2020, we participated in a government-sponsored loan
program. We also temporarily furloughed certain employees and reduced base salary by 20% for all remaining employees for the fourth quarter of fiscal 2020, as well as reducing other expenses. While the Company will remain focused on controlling
expenses, future results of operations are likely to be materially adversely impacted by the pandemic and its aftermath.






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






Note E - Stock-Based Compensation







Stock Options:







For the fiscal quarters ended December 27, 2020 and December 29, 2019, the Company did not recognize any stock-based compensation expense related to stock options. As of December 27, 2020, there
was no unamortized stock-based compensation expense related to stock options.






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





































































































































Six Months Ended






December 27,


2020





December 29,


2019








Shares





Shares




Outstanding at beginning of year





206,750






216,550















Granted

















Exercised

















Forfeited/Canceled/Expired




























Outstanding at end of period





206,750






216,550















Exercisable at end of period





206,750






216,550









Restricted Stock Units:







For the three months ended December 27, 2020 and December 29, 2019, the Company had no stock-based compensation expenses related to RSU’s. As of December 27, 2020, there was no unamortized
stock-based compensation expense related to RSU’s.







A summary of the status of restricted stock units as of December 27, 2020, and changes during the three months then ended is presented below:















































Unvested at June 28, 2020










Granted










Vested










Forfeited










Unvested at December 27, 2020














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).






(In thousands, except per share amounts)












































































































































































































































































































Three Months Ended





Six Months Ended






December 27,


2020





December 29,


2019





December 27,


2020





December 29,


2019




Net income available to common stockholders




$



102





$



14





$



178





$



251





















BASIC:



















Weighted average common shares





17,712






15,129






16,596






15,106





















Net income per common share




$



0.01





$



0.00





$



0.01





$



0.02





















DILUTED:



















Weighted average common shares





17,712






15,129






16,596






15,106




Convertible notes





798






800






798






815




Dilutive stock options












1













3




Weighted average common shares outstanding





18,510






15,930






17,394






15,924





















Net income per common share




$



0.01





$



0.00





$



0.01





$



0.02








For the three and six months ended December 27, 2020, options to purchase 206,750 shares of common stock at exercise prices from $2.71 to $13.11 were excluded from the computation of diluted EPS
because they were not in-the-money.






For the three and six months ended December 29, 2019, options to purchase 216,550 shares of common stock at exercise prices ranging from $2.71 to $13.11 were excluded from the computation of
diluted EPS because they were not in-the-money.






Note G - Income Taxes






For the six months ended December 27, 2020, the Company recorded an income tax expense of $4 thousand, all of which was attributable to current state 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. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. Future sources of taxable income are also considered in
determining the amount of the recorded valuation allowance. As of December 27, 2020, the Company had established a full valuation allowance of $6.5 million against its 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 three 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 products and services sold. Corporate administration costs, which
include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of non-recurring items.






The Pizza Inn and Pie Five Franchising segments establish franchisees, licensees and territorial rights. Revenue for this segment is primarily derived from franchise royalties, franchise license fees,
sale of area development and foreign master license rights, incentive payments 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 well as furniture and fixtures located at
the corporate office and trademarks and other intangible assets. All assets are located within the United States.






Summarized in the following table are net sales and operating revenues, depreciation and amortization expense, and income before taxes, for the Company’s reportable segments as of the three
months and six months ended December 27, 2020 and December 29, 2019 (in thousands):































































































































































































































































































































































































































































































































































Three Months Ended





Six Months Ended






December 27,


2020





December 29,


2019





December 27,


2020





December 29,


2019




Net sales and operating revenues:















Pizza Inn Franchising




$



1,624





$



1,648





$



3,004





$



3,512




Pie Five Franchising





456






1,021






932






1,873




Company-Owned Restaurants












96













204




Corporate administration and other





48






65






95






117




Consolidated revenues




$



2,128





$



2,830





$



4,031





$



5,706





















Depreciation and amortization:



















Pizza Inn Franchising




$









$









$









$








Pie Five Franchising































Company-Owned Restaurants































Combined































Corporate administration and other





43






49






87






96




Depreciation and amortization




$



43





$



49





$



87





$



96





















Income before taxes:



















Pizza Inn Franchising




$



1,284





$



1,323





$



2,384





$



2,735




Pie Five Franchising





190






508






399






946




Company-Owned Restaurants





(79



)





(236



)





(179



)





(439



)



Combined





1,395






1,595






2,604






3,242




Corporate administration and other





(1,291



)





(1,585



)





(2,422



)





(2,922



)



Income before taxes




$



104





$



10





$



182





$



320





















Geographic information (revenues):



















United States




$



2,074





$



2,778





$



3,933





$



5,595




Foreign countries





54






52






98






111




Consolidated total




$



2,128





$



2,830





$



4,031





$



5,706









Item 2.



Management’s Discussion and Analysis of Financial Condition and Results of Operations







The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this
Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 28, 2020 and may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the
words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our
business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ
materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q,
are set forth in our Annual Report on Form 10-K for the year ended June 28, 2020. 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 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”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third
party distributors. At December 27, 2020, Company-owned, franchised and licensed units consisted of the following:






Three Months Ended December 27, 2020


(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





142





$



15,757






37





$



4,332






179





$



20,089




Company-Owned













































Total Domestic Units





142





$



15,757






37





$



4,332






179





$



20,089





























International Franchised





32





















32












Six Months Ending December 27, 2020


(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





142





$



32,076






37





$



8,839






179





$



40,915




Company-Owned













































Total Domestic Units





142





$



32,076






37





$



8,839






179





$



40,915





























International Franchised





32





















32












Domestic units are located in 21 states predominantly situated in the southern half of the United States. International units are located in six foreign countries.






Basic net income per share increased $0.01 per share to $0.01 per share for the three months ended December 27, 2020, compared to the comparable period in the prior fiscal
year. The Company had net income of $102 thousand for the three months ended December 27, 2020 compared to net income of $14 thousand in the comparable period in the prior fiscal year, on revenues of $2.1 million for the three months ended December
27, 2020 compared to $2.8 million in the comparable period in the prior fiscal year. The decline in revenue was primarily due to decreases in restaurant sales, franchise royalties and franchise license fees partially offset by an increase in
supplier convention funds. The $0.1 million increase in net income for the three months ended December 27, 2020, compared to the comparable period of the prior year was the result of a $0.8 million decrease in expenses partially offset by the $0.7
million decrease in revenues.






Basic net income per share declined $0.01 per share to $0.01 per share for the six months ended December 27, 2020, compared to the comparable period in the prior fiscal year.
The Company had net income of $0.2 million for the six months ended December 27, 2020 compared to net income of $0.3 million in the comparable period in the prior fiscal year, on revenues of $4.0 million for the six months ended December 29, 2019
compared to $5.7 million in the comparable period in the prior fiscal year. The decline in revenue was primarily due to decreases in restaurant sales, franchise royalties, supplier convention funds and franchise license fees. The $0.1 million
decrease in net income for the six months ended December 27, 2020 compared to the comparable period of the prior year was primarily the result of the $1.7 million decrease in revenue partially offset by a $1.6 million decrease in  expenses.







COVID-19 Pandemic






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






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






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






Adjusted EBITDA






Adjusted EBITDA for the fiscal quarter ended December 27, 2020, increased $0.2 million compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA
remained steady compared to the same 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





Six Months Ended






December 27,


2020





December 29,


2019





December 27,


2020





December 29,


2019




Net income




$



102





$



14





$



178





$



251




Interest expense





23






24






46






51




Income taxes





2






(4



)





4






69




Depreciation and amortization





43






49






87






96




EBITDA




$



170





$



83





$



315





$



467




Stock compensation expense












(85



)












(85



)



Severance












119













119




Gain on sale of assets


























(11



)



Impairment of long-lived assets and other lease charges





4






193






21






341




Franchisee default and closed store revenue





(44



)





(307



)





(111



)





(454



)



Closed and non-operating store costs





75






(1



)





158






5




Adjusted EBITDA




$



205





$



2





$



383





$



382









Pizza Inn Brand Summary






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

















































































































































































































































































































Three Months Ended





Six Months Ended






December 27,


2020





December 29,


2019





December 27,


2020





December 29,


2019




Pizza Inn Retail Sales - Total Domestic Units




(in thousands, except unit data)





(in thousands, except unit data)




Domestic Units















Buffet Units - Franchised




$



14,290





$



19,268





$



29,014





$



39,553




Delco/Express Units - Franchised





1,411






1,524






2,947






3,069




PIE Units - Licensed





56






112






115






176




Total Domestic Retail Sales




$



15,757





$



20,904





$



32,076





$



42,798





















Pizza Inn Comparable Store Retail Sales - Total Domestic





15,466






18,950






31,198






38,994





















Pizza Inn Average Units Open in Period



















Domestic Units



















Buffet Units - Franchised





77






83






80






83




Delco/Express Units - Franchised





54






58






56






58




PIE Units - Licensed





11






10






11






10




Total Domestic Units





142






151






147






151








Total Pizza Inn domestic retail sales decreased $5.1 million, or 24.6%, for the three months ended December 27, 2020 when compared to the same period of the prior year. Pizza
Inn domestic comparable store retail sales decreased by $3.5 million, or 18.4%, for the three months ended December 27, 2020 when compared to the same period of the prior year.






Total Pizza Inn domestic retail sales decreased $10.7 million, or 25.1%, for the six months ended December 27, 2020 when compared to the same period of the prior year. Pizza
Inn domestic comparable store retail sales decreased by $7.8 million, or 20.0%, for the six months ended December 27, 2020 when compared to the same period of the prior year.






The following chart summarizes Pizza Inn unit activity for the three and six months ended December 27, 2020:












































































































































































































































Three Months Ended December 27, 2020






Beginning


Units





Opened





Concept


Change





Closed





Ending


Units




Domestic Units


















Buffet Units - Franchised





79






1













3






77




Delco/Express Units - Franchised





55




















1






54




PIE Units - Licensed





12




















1






11




Total Domestic Units





146






1













5






142

























International Units (all types)





32



























32

























Total Units





178






1













5






174














































































































































































































































Six Months Ended December 27, 2020






Beginning


Units





Opened





Concept


Change





Closed





Ending


Units




Domestic Units


















Buffet Units - Franchised





83






1













7






77




Delco/Express Units - Franchised





55




















1






54




PIE Units - Licensed





13




















2






11




Total Domestic Units





151






1













10






142

























International Units (all types)





38






1













7






32

























Total Units





189






2













17






174








There was a net decrease of four domestic Pizza Inn units during the three months ended December 27, 2020 and a net decrease of nine units in the total domestic Pizza Inn unit count during the six
months ended December 27, 2020. During the second quarter of fiscal 2021, the number of international Pizza Inn units remained the same while the number of international Pizza Inn units decreased by six in the six months ended December 27, 2020. 
We believe the modest net closure of Pizza Inn units will continue in the near term and eventually reverse in future periods.  We expect international units to increase moderately in future periods.







Pie Five Brand Summary






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
























































































































































































































































Three Months Ended





Six Months Ended






December 27,


2020





December 29,


2019





December 27,


2020





December 29,


2019






(in thousands, except unit data)





(in thousands, except unit data)




Pie Five Retail Sales - Total Units















Domestic Units - Franchised




$



4,332





$



7,391





$



8,839





$



16,119




Domestic Units - Company-owned












96













204




Total Domestic Retail Sales




$



4,332





$



7,487





$



8,839





$



16,323





















Pie Five Comparable Store Retail Sales - Total




$



4,013





$



4,751





$



8,052





$



10,019





















Pie Five Average Units Open in Period



















Domestic Units - Franchised





37






53






46






55




Domestic Units - Company-owned












1













1




Total Domestic Units





37






54






46






56








Pie Five system-wide retail sales decreased $3.2 million, or 42.1%, for the three months ended December 27, 2020 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 54 to 37. Comparable store retail sales decreased by $0.7 million, or 15.5%, during the second quarter of fiscal 2021 compared to the same period of the
prior year.






Pie Five system-wide retail sales decreased $7.5 million, or 45.8%, for the six month period ended December 27, 2020 when compared to the same period of the prior year.  
Year-to-date fiscal 2021 compared to year-to-date of the prior year, average units open in the period decreased from 56 to 46.  Comparable store retail sales decreased by $2.0 million, or 19.6%, during the six month period ended December 27, 2020
compared to the same period of the prior fiscal year.






The following chart summarizes Pie Five Unit activity for the three and six months ended December 27, 2020:

























































































































Three Months Ended December 27, 2020






Beginning


Units





Opened





Transfer





Closed





Ending


Units




















Domestic - Franchised





39




















2






37




Domestic - Company-owned






































Total Domestic Units





39




















2






37



























































































































Six Months Ended December 27, 2020






Beginning


Units





Opened





Transfer





Closed





Ending


Units




















Domestic - Franchised





42






1













6






37




Domestic - Company-owned






































Total Domestic Units





42






1













6






37








The net decreases of Pie Five units during the three and six months ended December 27, 2020 were primarily the result of the COVID-19 pandemic. We believe the modest net
closure of Pie Five units will continue in the near term and eventually reverse in future periods.

































































































































































































































































Pie Five - Company-Owned Restaurants




Three Months Ended





Six Months Ended




(in thousands, except store weeks and average data)




December 27,





December 29,





December 27,





December 29,






2020





2019





2020





2019




Store weeks (excluding partial weeks)












13













26




Average weekly sales












7,385













7,846




Average number of units












1













1





















Restaurant sales (excluding partial weeks)












96













204




Restaurant sales












96













204





















Loss before taxes





(79



)





(236



)





(179



)





(439



)



Allocated marketing and advertising expenses












(5



)












10




Impairment, other lease charges and non-operating store costs





79






192






179






346




Restaurant operating cash flow












(49



)












(83



)







Average weekly sales for Company-owned Pie Five Units decreased $7.4 million, or 100%, to zero for the three months ended December 27, 2020 compared to the same period of the
prior fiscal year. Company-owned Pie Five restaurant operating cash flow increased $49 thousand to zero during the second quarter of fiscal 2021 compared to the same period of the prior year. Loss before taxes for Company-owned Pie Five stores
decreased $0.2 million for the three months ended December 27, 2020 compared to the same period of the prior year.  The increased restaurant operating cash flow and decreased pre-tax loss were primarily the result of the closure of all remaining
Company-owned stores during the third quarter of fiscal 2020.






Average weekly sales for Company-owned Pie Five Units decreased $7.8 million, or 100%, to zero for the six months ended December 27, 2020 compared to the same period of the
prior fiscal year. Company-owned Pie Five restaurant operating cash flow increased $83 thousand to zero during the six month period ended December 27, 2020 compared to the same period of prior year. Loss before taxes for Company-owned Pie Five
stores decreased $0.3 million for the six months ended December 27, 2020 compared to the same period of the prior year.  The increased restaurant operating cash flow and decreased pre-tax loss were primarily the results of the closure of all
remaining Company-owned stores during the third quarter of fiscal 2020.






Non-GAAP Financial Measures and Other Terms






The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses
certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and
budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.






We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties
interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe that Adjusted
EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. We believe that restaurant operating cash
flow is a useful metric to investors in evaluating the ongoing operating performance of Company-owned 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, severance, gain/loss on sale of assets, costs related to impairment and other lease
charges, franchisee default and closed store revenue/expense, and closed and non-operating store costs.















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















“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) impairment and other lease charges, and (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.















“Franchisee default and closed store revenue/expense” represents the net of accelerated revenues and costs attributable to defaulted area development agreements and closed franchised stores.








Financial Results






The Company defines its operating segments as Pizza Inn Franchising, Pie Five Franchising and Company-Owned Restaurants. The following is additional business segment
information for the three and six months ended December 27, 2020 and December 29, 2019 (in thousands):






Three Months Ended December 27, 2020















































































































































































































































































































































































































































































































































































































































































































































































































































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






December


27,


2020





December


29,


2019





December


27,


2020





December


29,


2019





December


27,


2020





December


29,


2019





December


27,


2020





December


29,


2019





December


27,


2020





December


29,


2019




REVENUES:

































Franchise and license revenues




$



1,624





$



1,648





$



442





$



1,023





$









$









$









$









$



2,066





$



2,671




Restaurant sales








































96



























96




Rental income















































52






48






52






48




Interest income and other



















14






(2



)



















(4



)





17






10






15




Total revenues





1,624






1,648






456






1,021













96






48






65






2,128






2,830













































COSTS AND EXPENSES:











































Cost of sales

































75






115




















75






115




General and administrative expenses








































24






1,185






1,541






1,185






1,565




Franchise expenses





340






325






266






513


































606






838




Gain on sale of assets









































































Impairment of long-lived assets











































and other lease charges

































4






193




















4






193




Bad debt















































88






36






88






36




Interest expense















































23






24






23






24




Amortization and depreciation expense















































43






49






43






49




Total costs and expenses





340






325






266




</