This Form 10-K contains certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are intended to be covered by the
safe harbors created thereby. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expect,” “anticipate,” “intend,” “plan,”
“believe,” “estimate” or similar expressions. These statements include the plans and objectives of management for future operations, including plans and objectives relating to future growth of our business activities and availability of
funds. Statements that address business and growth strategies, performance goals, projected financial condition and operating results, our understanding of our competition, industry and market trends, and any other statements or assumptions
that are not historical facts are forward-looking statements.
The forward-looking statements included in this Form 10-K are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these
forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions, regulatory framework and future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that the assumptions underlying these forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of such information should not be regarded as a
representation that our objectives and plans will be achieved.
PART I
General
Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out
(“Delco Units”), express (“Express Units”) restaurants and ghost kitchens (“Pizza Inn Ghost Kitchen Units”) under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) and ghost kitchens (“Pie Five Ghost
Kitchen 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.
As of June 30, 2024, we had 126 franchised Pizza Inn restaurants, 20 franchised Pie Five Units, and three licensed PIE Units. The 102 domestic franchised Pizza Inn restaurants
were comprised of 78 Buffet Units, six Delco Units, 17 Express Units and one Pizza Inn Ghost Kitchen Unit. As of June 30, 2024, there were 24 international franchised Pizza Inn restaurants. Domestic Pizza Inn restaurants and kiosks were
located predominantly in the southern half of the United States, with Texas, North Carolina, Arkansas and Mississippi accounting for approximately 23%, 16%, 14% and 10%, respectively, of the total number of domestic units.
Our History
The Company has offered consumers affordable, high quality pizza since 1958, when the first Pizza Inn restaurant opened in Dallas, Texas. We awarded our first franchise in
1963 and opened our first buffet restaurant in 1969. We began franchising the Pizza Inn brand internationally in the late 1970s. In 1993, our stock began trading on the NASDAQ Stock Market and presently trades on the NASDAQ Capital Market
under the ticker symbol “RAVE.” In June 2011, we opened the first Pie Five restaurant in Ft. Worth, Texas. In November 2012, we signed our first franchise development agreement for Pie Five. In 2019, we launched the PIE kiosk and convenience
store solution to meet the consumer demand for tasty and high-quality pizzas within a grab-and-go delivery model.
Our Concepts
We operate and franchise restaurant concepts under two distinct brands: Pizza Inn and Pie Five.
Pizza Inn
We franchise Buffet Units, Delco Units, Express Units and Pizza Inn Ghost Kitchen Units under the Pizza Inn brand. Additionally, we license PIE Units under the Pizza Inn
brand. Buffet Units and Delco Units feature crusts that are hand-made from dough made fresh in the restaurant each day. Our pizzas are made with a proprietary all-in-one flour mixture, real mozzarella cheese, and a proprietary mix of classic
pizza spices. In international markets, the menu mix of toppings and side items is occasionally adapted to local tastes.
Buffet Units offer dine-in, carryout, and catering service and, in many cases, also offer delivery service. Buffet Units offer a variety of pizza crusts with standard toppings
and special combinations of toppings in addition to pasta, salad, sandwiches, appetizers, desserts and beverages, including beer and wine in some locations, in an informal, family-oriented atmosphere. We occasionally offer other items on a
limited promotional basis. Buffet Units are generally located in free standing buildings or strip center locations in retail developments near offices, shopping centers and residential areas. The current standard Buffet Units are between
2,100 and 4,500 square feet in size and seat 120 to 185 customers. The interior decor is designed to promote a casual, lively, contemporary, family-style atmosphere. Some Buffet Units feature game rooms that offer a range of electronic game
entertainment for the entire family.
Delco Units offer delivery and carryout service only and are typically located in shopping centers or other in-line retail developments. Delco Units typically offer a variety
of crusts and some combination of side items. Delco Units occupy approximately 1,200 square feet, are primarily production facilities and, in most instances, do not offer seating. The decor of the Delco Unit is designed to be bright and
highly visible and feature neon lighted displays and awnings. We have attempted to locate Delco Units strategically to facilitate timely delivery service and to provide easy access for carryout service.
Express Units serve our customers through a variety of non-traditional points of sale. Express Units are typically located in a convenience store, food court, college campus,
airport terminal, travel plaza, athletic facility, or other commercial facility. They have limited or no seating and solely offer quick carryout service of a limited menu of pizza and other foods and beverages. An Express Unit typically
occupies approximately 200 to 400 square feet and is commonly operated by the operator or food service licensee of the commercial host facility. We have developed a high-quality, pre-prepared crust that is topped and cooked on-site, allowing
this concept to offer a lower initial investment and reduced labor and operating costs while maintaining product quality and consistency. Like Delco Units, Express Units are primarily production-oriented facilities and, therefore, do not
require all of the equipment, labor or square footage of the Buffet Unit.
PIE Units serve customers through a non-traditional, licensed, pizza-only model called Pizza Inn Express. Like Delco Units and Express Units, the PIE Units are primarily
production-oriented facilities and, therefore, do not require all of the equipment, labor or square footage of the Buffet Unit. The Company does not intend to open additional PIE Units in the foreseeable future.
Pizza Inn Ghost Kitchen Units primarily serves customers online through third-party delivery companies and are located in a Pie Five restaurant. Dine-in, carryout, or catering services are not
offered. We have attempted to strategically locate Pizza Inn Ghost Kitchen Units in areas where Pie Five restaurants are presently located, but Pizza Inn is not.
Pie Five
Pie Five is a fast-casual pizza concept that creates individualized pizzas which are baked in our specially designed oven. Pizzas are created at the direction of our customers
who choose from a variety of freshly prepared and displayed proprietary and non-proprietary toppings, cheeses, sauces and doughs. Customers can also get freshly prepared side salads, also made to order from our recipes or at the customer’s
direction. A variety of soft beverages are available, as well as beer and wine in some locations.
Traditional Pie Five restaurants typically occupy leased, in-line or end-cap space of between 1,800 and 2,400 square feet in retail strip or multi-unit retail space. With
seating for 65 to 85 customers in most units, and patio seating where available, Pie Five restaurants primarily serve lunch and dinner to families, adults and kids of all ages. Pie Five restaurants typically are in high traffic, high
visibility urban or suburban sites in mid to large-size metropolitan areas. Sales are predominantly on-premise though carry out and delivery are offered as well. Due to the relatively compact footprint of the restaurants, and other operating
advantages, we believe Pie Five is also well suited for non-traditional locations such as airports.
Site Selection
We consider the restaurant site selection process critical to a restaurant’s long-term success and devote resources to the investigation and evaluation of potential sites. The
site selection process includes a review of trade area demographics and an evaluation process. We may also rely on a franchisee’s knowledge of the trade area and market characteristics when selecting a location for a franchised restaurant. A
member of our development team visits each potential domestic restaurant location.
Development and Operations
New Unit Development
We intend to expand the Pizza Inn system domestically and internationally in markets with significant long-term growth potential and where we believe we can use our
competitive strengths to establish brand recognition and gain local market share. We plan to expand our Pizza Inn branded domestic restaurant base primarily through opening new franchised restaurants with new and existing franchisees. We
expect to evaluate the continued development of new Pizza Inn Buffet and Delco Units in international markets in fiscal 2025.
The Company previously granted area developer rights for Pizza Inn restaurants in existing domestic markets. However, the Company is no longer pursuing such agreements. A
Pizza Inn area developer typically paid a negotiated fee to purchase the right to operate or develop restaurants within a defined territory and agreed to a multi-restaurant development schedule. The area developer assisted us in local
franchise service and quality control in exchange for half of the franchise fees and royalties from all restaurants within the territory during the term of the agreement.
We will opportunistically evaluate developing franchised Pie Five Units domestically. The rate at which we will be able to continue to expand the Pie Five concept through
franchise development is determined in part by our success at selecting qualified franchisees, by our ability to identify satisfactory sites in appropriate markets, and by our ability to continue training and monitoring our franchisees. We
intend to continue to focus on franchise development opportunities with experienced, well-capitalized restaurant operators. We believe that Pie Five units will decrease modestly in future periods.
Domestic Franchise Operations
Franchise and development agreements. Since the Pizza Inn concept was first franchised in 1963, industry franchising concepts and
development strategies have evolved, and our present franchise relationships are evidenced by a variety of contractual forms. Common to those forms are provisions that: (i) require the franchisee to follow the Pizza Inn system of restaurant
operation and management, (ii) require the franchisee to pay a franchise fee, contribute a specified percentage of sales to a marketing fund managed by the Company, and pay continuing royalties, and (iii) except for Express Units, prohibit
the development of one restaurant within a specified distance from another.
We launched the franchise program for Pie Five in fiscal 2013. Our Pie Five franchise agreement requires that the franchisees: (i) follow the Pie Five system of restaurant
operation and management, (ii) pay a franchise fee and continuing royalties, (iii) contribute a specified percentage of sales to a marketing fund managed by the Company, and (iv) only open restaurants that comply with site and design
standards determined by the Company.
Training. We offer numerous training programs for the benefit of franchisees and their restaurant crew managers. The training
programs, taught by experienced Company employees, focus on food preparation, service, cost control, sanitation, safety, local store marketing, personnel management, and other aspects of restaurant operation. The training programs include
group classes, supervised work in restaurants, and special field seminars. Initial and certain supplemental training programs are offered free of charge to franchisees, who pay their own travel and lodging expenses. New franchisees also
receive on-site training from Company employees to assist with their first two restaurant openings under their development agreements. Restaurant managers train their staff through on-the-job training using video and printed materials
produced by us.
Standards. We require franchisee adherence to a variety of standards designed to ensure proper operations and to protect and enhance
the Pizza Inn and Pie Five brands. All franchisees are required to operate their restaurants in compliance with these written policies, standards, and specifications, which include matters such as menu items, ingredients, materials, supplies,
services, furnishings, decor, and signs. Our efforts to maintain consistent operations may result, from time to time, in the closing of certain restaurants that have not maintained a consistent standard of quality or operations. We also
maintain adherence to our standards through ongoing support and education of our franchisees by our franchise business consultants, who are deployed locally in markets where our franchisees are located.
Domestic Kiosk License Operations
Kiosk license agreements. Our PIE Units are typically offered for five-year initial license periods with options for additional five
year renewals. PIE Unit licensees are not charged development fees, license fees, royalties, or advertising assessments. PIE Unit license agreements require that the licensee comply with standards of the Pizza Inn brand, including marketing,
kiosk system configuration, and sales and sourcing of authorized products and services. The mandated products and sourcing provisions within the PIE Unit licensing agreement result in supplier rebates for the Company.
Training. New licensees and their PIE Unit employees must attend and successfully complete our training program, which consists of a
single day of training at the licensed location. PIE Unit managers train their staff through on-the-job training, using video and printed materials produced by us.
Standards. We require licensee adherence to a variety of standards designed to ensure proper operations and to protect and enhance
the Pizza Inn brand. All licensees are required to operate their kiosks in compliance with these written policies, standards, and specifications, which include matters such as menu items, ingredients, materials, supplies, services,
furnishings, decor, and signs. Our efforts to maintain consistent operations may result, from time to time, in the closing of certain kiosks that have not maintained a consistent standard of quality or operations. We also maintain adherence
to our standards through ongoing support and education of our licensees by our franchise business consultants, who are deployed locally in markets where our licensees are located.
International Franchise Operations
We also offer master license rights to develop Pizza Inn and Pie Five restaurants in certain foreign countries, with negotiated fees, development schedules, and ongoing
royalties. A master licensee for a foreign country pays a negotiated fee to purchase the right to develop and operate restaurants within a defined territory, typically for a term of 20 years, plus a ten-year renewal option. The master
licensee agrees to a multi-restaurant development schedule, and we train the master licensee to monitor and assist franchisees in their territory with local service and quality control with support from us. In return, the master licensee
typically retains half the franchise fees and half the royalties on all restaurants within the territory during the term of the agreement. Master licensees may open restaurants that they own and operate, or they may open sub-franchised
restaurants owned and operated by third parties through agreements with the master licensee subject to our approval.
Our first franchised Pizza Inn restaurant outside of the United States opened in the late 1970s. As of June 30, 2024, there were 24 Pizza Inn restaurants operating
internationally. Except for three restaurants in Honduras and one restaurant in New Zealand, all of the Pizza Inn restaurants operated or sub-licensed by our international master licensees are in the United Arab Emirates, Saudi Arabia and
adjoining countries. Our ability to continue to develop select international markets is affected by a number of factors, including our ability to locate experienced, well-capitalized developers who can commit to an aggressive multi-restaurant
development schedule and achieve maximum initial market penetration with minimal supervision by us.
Food and Supply Distribution
Our franchisees and licensees purchase food and supplies directly from authorized, reputable, and experienced supply and distribution companies. The Company provides sourcing,
quality assurance, and research and development for both the Pizza Inn and Pie Five systems. The authorized distributors make deliveries to all domestic units from several distribution centers, with delivery territories and responsibilities
for each determined according to geographical region. As a franchisor, the Company is able to leverage the advantages of direct vendor negotiations and volume purchasing of food, equipment, and supplies for the franchisees’ and licensees’
benefit in the form of a concentrated, one-truck delivery system, competitive pricing, and product consistency. Franchisees and licensees are able to source all products and ingredients from authorized distributors. In order to assure product
quality and consistency, our franchisees and licensees are required to purchase from authorized distributors certain food products that are proprietary to the Pizza Inn and Pie Five systems, including cheese, pizza sauce, flour mixture,
certain meats, and spice blend. Franchisees and licensees may purchase other non-proprietary food products and supplies either from authorized distributors or from other suppliers who meet our requirements for quality and reliability.
Non-proprietary food and ingredients, equipment and other supplies are generally available from several qualified sources. With the exception of several proprietary food
products, such as cheese and dough flour, we are not dependent upon any one supplier or a limited group of suppliers. We contract with established food processors for the production of our proprietary products according to our specifications.
We have not experienced any significant shortages of supplies or any delays in receiving our food or beverage inventories, restaurant supplies, or products, but disruption of
supply chains or other factors could cause difficulty in obtaining inventories or supplies in the future. Prices charged by our suppliers are subject to fluctuation, and franchisees and licensees bear increased costs or benefit from savings
through changes in product pricing. We do not engage in commodity hedging but enter into pricing arrangements for up to a year in advance for certain high-volume products.
Marketing and Advertising
By communicating a common brand message at the regional, local market, and restaurant levels, we believe we can create and reinforce a strong, consistent marketing message to
consumers and increase our market share. We offer or facilitate several ways for the brand image and message to be promoted at the local and regional levels.
Pizza Inn and Pie Five franchisees contribute a specified percentage of their sales to the Company to fund the creation and production of various marketing and advertising
programs and materials, which may include print and digital advertisements, direct mail materials, customer satisfaction systems, social media and e-mail marketing, television and radio commercials, in-store promotional materials, marketing
and public relations services, and consumer research. We anticipate continuing to optimize Pizza Inn and Pie Five marketing activities commensurate with the contributions of the marketing funds.
Pizza Inn and Pie Five franchisees are required to conduct independent marketing efforts in addition to their participation in the national marketing programs for each brand.
We provide franchised restaurants with access to an assortment of local store marketing materials, including pre-approved print, radio, and digital media marketing materials. We also provide local store marketing materials and programs
specifically to support new restaurant openings.
Trademarks and Quality Control
We own various trademarks, including the names “Pizza Inn” and “Pie Five,” that are used in connection with the restaurants and have been registered with the United States
Patent and Trademark Office. The duration of our trademarks is unlimited, subject to periodic renewal and continued use. In addition, we have obtained trademark registrations for our marks in several foreign countries and have periodically
re-filed and applied for registration in others. We believe that we hold the necessary rights for protection of the trademarks essential to our business.
Government Regulation
We and our franchisees are subject to various federal, state and local laws affecting the operation of our restaurants. Each restaurant is subject to licensing and regulation
by several governmental authorities, which include health, safety, sanitation, wage and hour, alcoholic beverage, building and fire agencies in the state and municipality in which the restaurant is located. Difficulties in obtaining, or the
failure to obtain, required licenses or approvals could delay or prevent the opening of a new restaurant or require the temporary or permanent closing of an existing restaurant in a particular area.
We are subject to Federal Trade Commission (“FTC”) regulations and to various state laws regulating the offer and sale of franchises. The FTC requires us to furnish to
prospective franchisees a franchise disclosure document containing prescribed information. Substantive state laws that regulate the franchisor-franchisee relationship presently exist in a number of states, and bills have been introduced in
Congress from time to time that would provide for further federal regulation of the franchisor-franchisee relationship in certain respects. Some foreign countries also have disclosure requirements and other laws regulating franchising and the
franchisor-franchisee relationship.
As of June 30, 2024, we had 21 full-time employees. None of our employees are currently covered by collective bargaining agreements.
Industry and Competition
The restaurant industry is intensely competitive with respect to price, service, location, and food quality, and there are many well-established competitors with substantially
greater brand recognition and financial and other resources than the Company. Competitors include a number of international, national, and regional restaurant and pizza chains, as well as local restaurants and pizza operators. Some of our
competitors may be better established in the markets where our restaurants are or may be located. Within the pizza segment of the restaurant industry, we believe that our primary competitors are national pizza chains and several regional
chains. We also compete against the frozen pizza products available at grocery stores and large superstore retailers. In recent years, several competitors have developed fast-casual pizza concepts that compete with Pie Five in certain
metropolitan areas. A change in the pricing or other market strategies of one or more of our competitors could have an adverse impact on our sales and earnings.
With respect to the sale of franchises and licenses, we compete with many franchisors of restaurants and other business concepts. We believe that the principal competitive
factors affecting the sale of franchises are product quality, price, value, consumer acceptance, franchisor experience and support, and the quality of the relationship maintained between the franchisor and its franchisees. In general, there
is active competition for management personnel and attractive commercial real estate sites suitable for our restaurants.
Not required for a smaller reporting company.
| ITEM 1B. |
UNRESOLVED STAFF COMMENTS.
|
Not applicable.
The Company recognizes the critical importance of maintaining the safety and security of our systems and data and has a holistic process for overseeing and
managing cybersecurity and related risks. The Company believes that cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not
reasonably likely to materially affect our business strategy, results of operations or financial condition.
Cybersecurity Risk Management and Strategy
Personnel
The Company has an information security program and procedures in place to protect, identify, detect, respond to and manage reasonably foreseeable cybersecurity risks and
threats. The Company uses various security tools that help prevent, identify, investigate, resolve and recover from identified vulnerabilities and security incidents to protect our information systems and data from cybersecurity threats. This
framework is implemented and overseen by management’s information security department which is led by the Information Technology (“IT”) Support Associate Director and overseen by the Company’s IT Steering Committee. The IT Support Associate
Director has over twenty years of experience in technology management and cybersecurity. The IT Steering Committee is comprised of the Company’s two Associate IT Directors, the CEO, and CFO and convenes quarterly to review IT control policies
and procedures are properly followed and any new employees were properly onboarded in compliance with security procedures.
Third Party Engagement
The Company employs third party risk security vendors to identify, mitigate, and remediate cybersecurity risks; however, we rely on the third parties we use to implement
security programs commensurate with their risks, and we cannot ensure in all circumstances that their efforts will be successful. An annual penetration test is performed in April, which is a security test that simulates a real-world threat to
the Company’s IT network and includes comprehensive “Dark Web” searches of all domain user emails. The test performed by Connection (Data Partner) revealed no current cybersecurity breaches. Scans of the Company’s firewall are conducted
during the first week of each quarter by third party vendor Contego. Any necessary remediation would also be provided by Contego after the scan, but none has been required. The Company uses SolarWinds with Sentinel One software from Contego
to continually monitor technology systems for viruses, malicious software, executable harmful files, and other cybersecurity risks. The Company requires the annual submission of SOC 1 security certificates from our third-party vendors which
have access to our financial and sales data. The Company also maintains cybersecurity insurance providing coverage for certain costs related to security failures and specified cybersecurity related incidents.
The Company recognizes that threat actors frequently target employees to gain unauthorized access to information systems. Therefore, each employee is required to complete
information security and data privacy training to build awareness of cybersecurity risks to the organization. The Company has engaged third party vendor Knowbe4 to send each employee an email that mimics a potentially harmful phishing attempt
each month and to report to management the results of the phishing security test.
Governance
The Board of Directors are acutely aware of the critical nature of managing risks associated with cybersecurity threats. Each quarterly meeting, management presents a
cybersecurity update which includes results of testing by third-party vendors and any suspected cybersecurity incidents to the entire Board of Directors. Management would report any material cybersecurity breach immediately to the full Board
of Directors. The Company has a written policy for the employee reporting of any cybersecurity suspected incidents.
The Audit Committee of the Board has the primary responsibility to oversee effective governance in managing risks associated with cybersecurity threats. Our Audit Committee is
composed of members with diverse expertise, including risk management, technology, and finance, equipping them to oversee cybersecurity risks effectively.
The Company leases its 19,576 square foot corporate office facility with average annual lease payments of approximately $18.00 per square foot. This lease began on January 2,
2017 and has a ten-year term. The Company amended its lease agreement in June 2020 and elected to defer one-half of the monthly base rent for the period from June 2020 through May 2021.
As of June 30, 2024, the Company had contingent and direct lease obligations for four additional restaurant locations. One of the lease obligations have been subleased and
three of the lease obligations have been assigned to franchisees. These leased properties range in size from 2,193 to 2,428 square feet, have annual rental rates ranging from approximately $35.00 to $42.00 per square foot and expire between
2025 and 2028.
| ITEM 3. |
LEGAL PROCEEDINGS.
|
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.
| ITEM 4. |
MINE SAFETY DISCLOSURES.
|
Not applicable.
PART II
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
The Company’s common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “RAVE”. As of September 19,
2024, there were approximately 1,887 stockholders of record of the Company’s common stock.
The Company had no sales of unregistered securities during fiscal 2024 or 2023.
The Company has not paid dividends historically, and currently there is no intention to pay any dividends on our common stock, but dividends may be considered in the future.
Equity Compensation Plan Information
The following table furnishes information with respect to the Company’s stock option equity compensation plans as of June 30, 2024:
|
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
|
|
|
Weighted average
exercise price of
outstanding options,
warrants, and rights
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans (1)
|
|
|
Stock option compensation plans approved by security holders
|
|
|
114,286
|
|
|
$
|
4.89
|
|
|
|
1,585,656
|
|
|
Stock option compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
RSU compensation plans approved by security holders
|
|
|
403,595
|
|
|
|
1.59
|
|
|
|
—
|
|
|
Total
|
|
|
517,881
|
|
|
$
|
2.32
|
|
|
|
1,585,656
|
|
| (1) |
Securities remaining available for future issuance under the 2015 Long Term Incentive Program are net of a maximum of 403,595 shares of common stock issuable pursuant to outstanding restricted stock units, subject to applicable
vesting requirements and performance criteria. See Note H to the audited consolidated financial statements included in this report.
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Annual
Report on Form 10-K and may contain certain forward-looking statements. See “Forward-Looking Statements.”
Overview
The Company franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”), express (“Express Units”) restaurants and ghost kitchens (“Pizza Inn Ghost Kitchen
Units”) under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) and ghost kitchens (“Pie Five Ghost Kitchen 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 June 30, 2024, franchised and licensed restaurants consisted of the following:
Fiscal Year Ended June 30, 2024
(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
|
|
|
105
|
|
|
$
|
106,418
|
|
|
|
20
|
|
|
$
|
16,886
|
|
|
|
125
|
|
|
$
|
123,304
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Franchised
|
|
|
24
|
|
|
$
|
5,486
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
24
|
|
|
$
|
5,486
|
|
The domestic units were located in 15 states predominately situated in the southern half of the United States. The international restaurants were located in eight foreign
countries predominantly in the Middle East.
Fiscal years 2024 and 2023 included 53 weeks and 52 weeks, respectively. In order to reflect comparable 53 week periods, the first week of fiscal 2024 has been included in
both periods in the presentation of retail sales, average units open and comparable store retail sales.
The following table summarizes domestic comparable store retail sales for the Company.
| |
|
53 Weeks Ended
|
|
| |
|
June 30,
2024
|
|
|
July 2,
2023
|
|
| |
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
Pizza Inn Domestic Comparable Store Retail Sales
|
|
$
|
100,875
|
|
|
$
|
98,610
|
|
|
Pie Five Domestic Comparable Store Retail Sales
|
|
|
16,801
|
|
|
|
17,450
|
|
|
Total Rave Comparable Store Retail Sales
|
|
$
|
117,676
|
|
|
$
|
116,060
|
|
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:
| |
|
53 Weeks Ended
|
|
| |
|
June 30,
2024
|
|
|
July 2,
2023
|
|
|
Pizza Inn Retail Sales - Total Domestic Units
|
|
(in thousands, except unit data)
|
|
| |
|
|
|
|
|
|
|
Buffet Units - Franchised
|
|
$
|
102,498
|
|
|
$
|
96,872
|
|
|
Delco/Express Units - Franchised
|
|
|
3,846
|
|
|
|
5,418
|
|
|
PIE Units - Licensed
|
|
|
70
|
|
|
|
208
|
|
|
Pizza Inn Ghost Kitchen Units - Franchised
|
|
|
4
|
|
|
|
—
|
|
|
Total Domestic Retail Sales
|
|
$
|
106,418
|
|
|
$
|
102,498
|
|
| |
|
|
|
|
|
|
|
|
|
Pizza Inn Comparable Store Retail Sales - Total Domestic
|
|
$
|
100,875
|
|
|
$
|
98,610
|
|
| |
|
|
|
|
|
|
|
|
|
Pizza Inn Average Units Open in Period
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buffet Units - Franchised
|
|
|
76
|
|
|
|
73
|
|
|
Delco/Express Units - Franchised
|
|
|
29
|
|
|
|
44
|
|
|
PIE Units - Licensed
|
|
|
4
|
|
|
|
8
|
|
|
Pizza Inn Ghost Kitchen Units - Franchised
|
|
|
—
|
|
|
|
—
|
|
|
Total Domestic Units
|
|
|
109
|
|
|
|
125
|
|
Pizza Inn total domestic retail sales increased by $3.9 million, or 3.8%, for fiscal 2024 when compared to the prior 53 weeks. Compared to the prior year, average Buffet Units
open in the period increased from 73 to 76. Comparable store retail sales increased by $2.3 million to $100.9 million for fiscal 2024 as compared to the prior 53 weeks. For fiscal 2024, the increase in domestic retail sales were primarily the
result of the increase in Buffet Units, supplemented by an increase in comparable domestic store retail sales.
The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 30, 2024:
| |
|
Fiscal Year Ended June 30, 2024
|
|
| |
|
Beginning Units
|
|
|
Opened
|
|
|
Concept Change
|
|
|
Transfer
|
|
|
Closed
|
|
|
Ending
Units
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffet Units - Franchised
|
|
|
77
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
3
|
|
|
|
78
|
|
|
Delco/Express Units - Franchised
|
|
|
41
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
23
|
|
|
PIE Units - Licensed
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
3
|
|
|
Pizza Inn Ghost Kitchen Units - Franchised
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
Total Domestic Units
|
|
|
123
|
|
|
|
4
|
|
|
|
2
|
|
|
|
4
|
|
|
|
24
|
|
|
|
105
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Units (all types)
|
|
|
34
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
24
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Units
|
|
|
157
|
|
|
|
10
|
|
|
|
2
|
|
|
|
4
|
|
|
|
40
|
|
|
|
129
|
|
There was a net decrease of 18 units in the total domestic Pizza Inn unit count during fiscal 2024. There were four transfers in the total domestic Pizza Inn unit count during
fiscal 2024. For fiscal 2024, the number of international Pizza Inn units decreased by 10 units. Twelve units were terminated in Saudi Arabia for failure to pay royalties and subsequently a 50-unit development agreement was signed with a
new franchise partner who opened five Pizza Inn units in Saudi Arabia in fiscal year 2024. There were zero transfers in the total international Pizza Inn unit count during fiscal 2024. The Company believes the number of both
domestic and international Pizza Inn units will increase modestly in future periods.
Pie Five Brand Summary
The following tables summarize certain key indicators for the Pie Five franchised restaurants that management believes are useful in evaluating performance:
| |
|
53 Weeks Ended
|
|
| |
|
June 30,
2024
|
|
|
July 2,
2023
|
|
|
Pie Five Retail Sales - Total Units
|
|
(in thousands, except unit data)
|
|
| |
|
|
|
|
|
|
|
Pie Five Units - Franchised
|
|
$
|
16,875
|
|
|
$
|
20,385
|
|
|
Pie Five Ghost Kitchen Units - Franchised
|
|
|
11
|
|
|
|
—
|
|
|
Total Domestic Retail Sales
|
|
$
|
16,886
|
|
|
$
|
20,385
|
|
| |
|
|
|
|
|
|
|
|
|
Pie Five Comparable Store Retail Sales - Total
|
|
$
|
16,801
|
|
|
$
|
17,450
|
|
| |
|
|
|
|
|
|
|
|
|
Pie Five Average Units Open in Period
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Pie Five Units - Franchised
|
|
|
24
|
|
|
|
30
|
|
|
Pie Five Ghost Kitchen Units - Franchised
|
|
|
1
|
|
|
|
—
|
|
|
Total Domestic Units
|
|
|
25
|
|
|
|
30
|
|
Pie Five total domestic retail sales decreased by $3.5 million, or 17.2%, for fiscal 2024 when compared to the prior year. Compared to the prior year, average units open in
the period decreased from 30 to 25. Comparable store retail sales decreased by $0.6 million to $16.8 million for fiscal 2024 as compared to the prior year. For fiscal 2024, the decrease in domestic retail sales were primarily the result of
the decrease in store count, supplemented by a decrease in comparable store retail sales.
The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 30, 2024:
| |
|
Fiscal Year Ended June 30, 2024
|
|
| |
|
Beginning
Units
|
|
|
Opened
|
|
|
Concept
Change
|
|
|
Transfer
|
|
|
Closed
|
|
|
Ending
Units
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pie Five Units - Franchised
|
|
|
27
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
7
|
|
|
|
18
|
|
|
Pie Five Ghost Kitchen Units - Franchised
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
|
Total Domestic Units
|
|
|
27
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
7
|
|
|
|
20
|
|
The was a net decrease of seven units in the total domestic Pie Five unit count during fiscal 2024. There was a net increase of one Pie Five Ghost Kitchen Units during fiscal
2024. Two Pie Five units converted to become Pizza Inn Buffet units. Of the seven Pie Five closures, two were due to lease expirations, one was closed by mutual decision of the franchise owner and Rave management, and four were unilaterally
closed by franchise owner decision. We believe that Pie Five units will decrease modestly in future periods.
Non-GAAP Financial Measures and Other Terms
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and
discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and
for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.
We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other
parties interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe
that Adjusted EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. Management also uses
these non-GAAP financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.
The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have these meanings and are calculated as follows:
|
• |
“EBITDA” represents earnings before interest, taxes, depreciation and amortization.
|
|
• |
“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, severance, gain/loss on sale of assets, costs related to impairment and other
lease charges, franchisee default and closed store revenue/expense, and closed and non-operating store costs.
|
|
• |
“Retail sales” represents the restaurant sales reported by our franchisees, which may be segmented by brand or domestic/international locations.
|
|
• |
“Comparable store retail sales” includes the retail sales for restaurants that have been open for at least 18 months as of the end of the reporting period. The sales results for a restaurant that was closed
temporarily for remodeling or relocation within the same trade area are included in the calculation only for the days that the restaurant was open in both periods being compared.
|
|
• |
“Store weeks” represent the total number of full weeks that specified restaurants were open during the period.
|
|
• |
“Average units open” reflects the number of restaurants open during a reporting period weighted by the percentage of the weeks in a reporting period that each restaurant was open.
|
|
• |
“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks) divided by store weeks in the period.
|
|
• |
“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 and Pie Five Franchising. The following is additional business segment information for the Fiscal Years
ended June 30, 2024 and June 25, 2023 (in thousands):
| |
|
Pizza Inn
Franchising
|
|
|
Pie Five
Franchising
|
|
|
Corporate
|
|
|
Total
|
|
| |
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
| |
|
June 30,
2024
|
|
|
June 25,
2023
|
|
|
June 30,
2024
|
|
|
June 25,
2023
|
|
|
June 30,
2024
|
|
|
June 25,
2023
|
|
|
June 30,
2024
|
|
|
June 25,
2023
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise and license revenues
|
|
$
|
10,295
|
|
|
$
|
9,810
|
|
|
$
|
1,708
|
|
|
$
|
1,870
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,003
|
|
|
$
|
11,680
|
|
|
Rental income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
131
|
|
|
|
186
|
|
|
|
131
|
|
|
|
186
|
|
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
23
|
|
|
Total revenues
|
|
|
10,295
|
|
|
|
9,810
|
|
|
|
1,724
|
|
|
|
1,893
|
|
|
|
131
|
|
|
|
186
|
|
|
|
12,150
|
|
|
|
11,889
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,267
|
|
|
|
5,490
|
|
|
|
5,267
|
|
|
|
5,490
|
|
|
Franchise expenses
|
|
|
2,985
|
|
|
|
3,059
|
|
|
|
671
|
|
|
|
897
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,656
|
|
|
|
3,956
|
|
Impairment of long-lived assets and other lease charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
|
Provision for credit losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69
|
|
|
|
73
|
|
|
|
69
|
|
|
|
73
|
|
|
Interest (income) expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(153
|
)
|
|
|
1
|
|
|
|
(153
|
)
|
|
|
1
|
|
|
Depreciation and amortization expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
219
|
|
|
|
214
|
|
|
|
219
|
|
|
|
214
|
|
|
Total costs and expenses
|
|
|
2,985
|
|
|
|
3,059
|
|
|
|
671
|
|
|
|
897
|
|
|
|
5,402
|
|
|
|
5,783
|
|
|
|
9,058
|
|
|
|
9,739
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE TAXES
|
|
$
|
7,310
|
|
|
$
|
6,751
|
|
|
$
|
1,053
|
|
|
$
|
996
|
|
|
$
|
(5,271
|
)
|
|
$
|
(5,597
|
)
|
|
$
|
3,092
|
|
|
$
|
2,150
|
|
Revenues:
Revenues are derived from franchise royalties, supplier and distributer incentives, franchise license fees, area development exclusivity fees and foreign master license fees,
advertising funds, supplier convention funds, sublease rental income, and other income. The volume of supplier incentive revenues is dependent on the level of chain-wide retail sales, which are impacted by changes in comparable store sales
and restaurant count, as well as the products sold to franchisees through third-party food distributors.
Total revenues for fiscal 2024 and fiscal 2023 were $12.2 million and $11.9 million, respectively.
Pizza Inn Franchise and License
Pizza Inn franchise revenues increased by $0.5 million to $10.3 million for fiscal 2024 as compared to $9.8 million for fiscal 2023. The 4.9% increase was driven by increases
in supplier and distributor incentives.
Pie Five Franchise and License
Pie Five franchise revenues decreased by $0.2 million to $1.7 million for fiscal 2024 as compared to $1.9 million for fiscal 2023. The 8.7% decrease was driven by decreases in
domestic royalties and advertising fund revenues, offset by increases in default and closed store revenues.
Costs and Expenses:
General and Administrative Expenses
Total general and administrative expenses decreased by $0.2 million to $5.3 million for fiscal 2024 as compared to $5.5 million for fiscal 2023. The 4.1%
decrease was driven by decreased salary and stock-based compensation expense.
Franchise Expenses
Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise
expenses decreased by $0.3 million to $3.7 million in fiscal 2024 as compared to $4.0 million for fiscal 2023. Pizza Inn franchise expenses decreased $0.1 million to $3.0 million for fiscal 2024 compared to $3.1 million for fiscal 2023. The
2.4% decrease was driven by decreases in advertising fees. Pie Five franchise expenses decreased $0.2 million to $0.7 million for fiscal 2024 compared to $0.9 million for fiscal 2023. The 25.2% decrease was driven by decreases in advertising
fees and salaries.
Impairment of Long-lived Assets and Other Lease Charges
Impairment of long-lived assets and other lease charges was zero for fiscal 2024 compared to $5 thousand for fiscal 2023. The decrease was primarily due to impaired beverage
equipment in the prior period.
Provision for Credit Losses
The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. Provision for
credit losses decreased by $4 thousand to $69 thousand for fiscal 2024 as compared to $73 thousand for fiscal 2023. The 4.7% decrease was driven by the write-off of bad debt, partially offset by the increase in accounts over 90 days.
Interest Expense and Income
Interest expense decreased $1 thousand for fiscal 2024 to zero compared to $1 thousand in the prior year. Interest income increased $153 thousand for fiscal 2024 to $153
thousand compared to zero in the prior year. The increase was primarily driven by interest received on U.S. Treasury bills.
Amortization and Depreciation Expense
Amortization and depreciation expense increased slightly for fiscal 2024, compared to fiscal 2023. The increase was primarily the result of higher amortization of intangible
assets from an increase in expenditures for developing a new prototype.
Provision for Income Taxes
Total income tax expense consists of the following (in thousands):
| |
|
Fiscal Year Ended
|
|
| |
|
June 30, 2024
|
|
|
June 25, 2023
|
|
|
Federal tax expense
|
|
$
|
530
|
|
|
$
|
394
|
|
|
State tax expense
|
|
|
89
|
|
|
|
143
|
|
|
Total income tax expense
|
|
$
|
619
|
|
|
$
|
537
|
|
For the year ended June 30, 2024, the Company recorded an income tax expense of $619 thousand. The federal and state tax expense was $530 thousand and $89
thousand, respectively. The change in both federal and state tax expense was primarily driven by the increase in net income, utilization of jurisdictional operating losses and a current year tax deduction for stock-based compensation. The
Company utilized net operating losses to offset federal taxes. At the end of tax year ended June 30, 2024, the Company had federal net operating loss carryforwards totaling $18.9 million that are available to reduce future taxable income
and will begin to expire in 2035. Under the Tax Cuts and Jobs Act, approximately $1.3 million of the loss carryforwards are limited to 80% and do not expire. Tax years that remain subject to examination by the IRS are the years ended
June 28, 2021 through June 25, 2023. Tax years that remain subject to examination by state authorities are the years ended June 30, 2020 through June 25, 2023.
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 any required valuation allowance.
There are no material uncertain tax positions. Management’s position is that all relevant requirements are met and necessary returns have been filed, and therefore the tax positions taken on
the tax returns would be sustained upon examination.
Basic net income per common share increased $0.06 to net income of $0.17 per share for fiscal 2024 compared to a net income of $0.11 per share in the prior fiscal year. Diluted net income per
common share increased $0.07 to net income of $0.17 per share for fiscal 2024 compared to a net income of $0.10 per share in the prior fiscal year. Net income increased $0.9 million to net income of $2.5 million for fiscal 2024 compared to a
net income of $1.6 million for the prior fiscal year on revenues of $12.2 million for fiscal 2024 as compared to $11.9 million in fiscal 2023.
Adjusted EBITDA for the fiscal year ended June 30, 2024, increased to $3.2 million compared to $2.7 million for the prior fiscal year. The following table sets forth a
reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):
| |
|
Fiscal Year Ended
|
|
| |
|
June 30,
2024
|
|
|
June 25,
2023
|
|
|
Net income
|
|
$
|
2,473
|
|
|
$
|
1,613
|
|
|
Interest (income) expense
|
|
|
(153
|
)
|
|
|
1
|
|
|
Income taxes
|
|
|
619
|
|
|
|
537
|
|
|
Depreciation and amortization
|
|
|
219
|
|
|
|
214
|
|
|
EBITDA
|
|
$
|
3,158
|
|
|
$
|
2,365
|
|
|
Stock-based compensation expense
|
|
|
149
|
|
|
|
345
|
|
|
Severance
|
|
|
5
|
|
|
|
—
|
|
|
Impairment of long-lived assets and other lease charges
|
|
|
—
|
|
|
|
5
|
|
|
Franchisee default and closed store revenue
|
|
|
(156
|
)
|
|
|
(13
|
)
|
|
Adjusted EBITDA
|
|
$
|
3,156
|
|
|
$
|
2,702
|
|
Results of operations for the fiscal years 2024 and 2023 included 53 weeks and 52 weeks, respectively.
Liquidity and Capital Resources
Sources and Uses of Funds
During fiscal 2024, the Company’s primary source of liquidity was proceeds from operating activities.
Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes,
stock-based compensation, and changes in working capital. Cash provided by operating activities was $2.7 million in fiscal 2024 compared to cash provided by operating activities of $2.6 million in fiscal 2023. The primary driver of increased
operating cash flow during fiscal 2024 was increased net income due to lower employee related expenses.
Cash flows from investing activities reflect purchases and maturities of short term investments as well as net proceeds from the sale of assets and capital expenditures for
the purchase of Company assets. Cash used in investing activities during fiscal 2024 was $4.9 million compared to cash used in investing activities of $15 thousand in fiscal 2023.
Cash flows used in financing activities generally reflect changes in the Company’s stock and debt activity during the period. Net cash used in financing
activities was $0.3 million for fiscal 2024 compared to net cash used in financing activities of $5.0 million for fiscal 2023. Net cash used by financing activities in fiscal 2024 was primarily attributable to taxes paid on vested
Restricted Stock Units (“RSUs”). Net cash used by financing activities in fiscal 2023 was primarily attributable to repurchases of the Company’s stock.
Liquidity
We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily from cash on hand and operating cash flow. Based on budgeted and
year-to-date cash flow information, we believe that we have sufficient liquidity to satisfy our cash requirements for the 2025 fiscal year and beyond.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of assets,
liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances. Estimates and
assumptions are reviewed periodically. Actual results could differ materially from estimates.
The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and
therefore require subjective judgments. Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.
Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The Company records an allowance for credit losses to allow
for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from the
Company’s estimates.
The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is
evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value. If impairment is indicated, the carrying value of an impaired asset is
reduced to its fair value, based on discounted estimated future cash flows. The Company recognized pre-tax, non-cash impairment charges of zero and $5 thousand during fiscal 2024 and 2023, respectively. The Company had $0.1 million and $0.2
million in sublease income during fiscal 2024 and 2023, respectively.
Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and
convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. In the event of a closed
franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. Royalties and advertising fund revenues, which are based on a percentage
of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.
The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable
temporary differences, and tax planning strategies. The Company assess whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not”
standard. In assessing the need for the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight is given to
evidence that can be objectively verified, including recent operating performance. Future sources of taxable income are also considered in determining the amount of the recorded valuation allowance.
The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present,
and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more
likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. As of June 30, 2024 and June 25, 2023, the Company had no uncertain tax positions.
The Company assesses its exposures to loss contingencies from legal matters based upon factors such as the current status of the cases and consultations with external counsel
and provides for the exposure by accruing an amount if it is judged to be probable and can be reasonably estimated. If the actual loss from a contingency differs from management’s estimate, operating results could be adversely impacted.
The Company determines if an arrangement is a lease at inception of the arrangement. To the extent that it can be determined that an arrangement represents a lease, it is classified as either
an operating lease or a finance lease. The Company does not currently have any finance leases. The Company capitalizes operating leases on the Consolidated Balance Sheets through a right of use asset and a corresponding lease liability. Right
of use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Short-term leases that have an initial term of
one year or less are not capitalized. The Company does not presently have any short-term leases.
Operating lease right of use assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to
the present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred. Lease expense for
operating lease payments is recognized on a straight-line basis over the lease term.
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
Not required for a smaller reporting company.
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
See information set forth on Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|
| ITEM 9A. |
CONTROLS AND PROCEDURES.
|
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures,
as of the end of the period covered by this report, were effective in assuring that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) accumulated and communicated to
management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934). Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, the Company has conducted an evaluation of the effectiveness of its
internal control over financial reporting. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, management has concluded that our internal control over financial reporting was effective as of June 30, 2024.
| ITEM 9B. |
OTHER INFORMATION.
|
During the quarter ended June 30, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation
S-K.
PART III
| ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
| ITEM 11. |
EXECUTIVE COMPENSATION.
|
The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
|
The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES.
|
The information required by this Item is incorporated by reference from the Company’s definitive proxy statement to be filed with the SEC pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
PART IV
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|
|
1. |
The financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.
|
|
2. |
Any financial statement schedule filed as part of this report is listed in the Index to Consolidated Financial Statements and Supplementary Data appearing on page F-1 of this report on Form 10-K.
|
|
|
Amended and Restated Articles of Incorporation of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed January 8,
2015).
|
| |
|
|
|
Amended and Restated Bylaws of Rave Restaurant Group, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed January 8, 2015).
|
| |
|
|
|
Description of Registrant’s Securities. (filed as Exhibit 4.4 to Form 10-K for the fiscal year ended June 27, 2021 and incorporated herein by reference).
|
| |
|
|
|
2015 Long Term Incentive Plan of the Company (filed as Exhibit 10.1 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*
|
| |
|
|
|
Form of Stock Option Grant Agreement under the Company’s 2015 Long Term Incentive Plan (filed as Exhibit 10.2 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*
|
| |
|
|
|
Form of Restricted Stock Unit Award Agreement under the Company’s 2015 Long-Term Incentive Plan (filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended December 27, 2015 and
incorporated herein by reference).*
|
| |
|
|
|
Lease Agreement dated November 1, 2016, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.4 to Form 10-K for the year ended June 30, 2019 and
incorporated herein by reference).*
|
| |
|
|
|
First Amendment to Lease and Expansion dated July 1, 2017, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.5 to Form 10-K for the year ended
June 30, 2019 and incorporated herein by reference).*
|
| |
|
|
|
Second Amendment to Lease Agreement effective June 1, 2020, between A&H Properties Partnership and Rave Restaurant Group, Inc. (filed as Exhibit 10.6 to Form
10-K for the fiscal year ended June 27, 2021 and incorporated herein by reference).
|
| |
|
|
|
Letter agreement dated October 18, 2019, between Rave Restaurant Group, Inc. and Brandon Solano (filed as Exhibit 10.1 to Form 8-K filed October 21, 2019 and incorporated herein by
reference).*
|
| |
|
|
|
Letter agreement dated March 25, 2024, between Rave Restaurant Group, Inc. and Jay Rooney (filed as Exhibit 10.1 to Form 8-K filed March 26, 2019 and incorporated herein by reference).*
|
| |
|
|
|
List of Subsidiaries (filed as Exhibit 21.1 to Form 10-K filed September 30, 2019 and incorporated herin by reference).*
|
| |
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
| |
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
|
| |
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
|
| |
|
|
|
Section 1350 Certification of Principal Executive Officer.
|
| |
|
|
|
Section 1350 Certification of Principal Financial Officer.
|
| |
|
|
101
|
Interactive data files pursuant to Rule 405 of Regulation S-T.
|
*Management contract or compensatory plan or agreement.
| ITEM 16. |
FORM 10-K SUMMARY.
|
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
Date: September 26, 2024
|
By: /s/ Brandon L. Solano
|
| |
Brandon L. Solano
|
| |
Chief Executive Officer
|
| |
(principal executive officer)
|
| |
|
| |
By: /s/ Jay D. Rooney
|
| |
Jay D. Rooney
|
| |
Chief Financial Officer
|
| |
(principal financial officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
Name and Position
|
|
Date
|
|
|
/s/ Brandon L. Solano
|
|
|
|
|
Brandon L. Solano
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
(principal executive officer)
|
|
September 26, 2024
|
|
| |
|
|
|
|
/s/ Jay D. Rooney
Jay D. Rooney
Chief Financial Officer
(principal financial officer)
|
|
September 26, 2024
|
|
| |
|
|
|
|
/s/ Mark E. Schwarz
|
|
|
|
|
Mark E. Schwarz
|
|
|
|
|
Director and Chairman of the Board
|
|
September 26, 2024
|
|
| |
|
|
|
|
/s/ Robert B. Page
|
|
|
|
|
Robert B. Page
|
|
|
|
|
Director
|
|
September 26, 2024
|
|
| |
|
|
|
|
/s/ William C. Hammett, Jr.
|
|
|
|
|
William C. Hammett, Jr.
|
|
|
|
|
Director
|
|
September 26, 2024
|
|
| |
|
|
|
|
/s/ Clinton J. Coleman
|
|
|
|
|
Clinton J. Coleman
|
|
|
|
|
Director
|
|
September 26, 2024
|
|