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RAVE RESTAURANT GROUP, INC.

 

PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements	Page
		Condensed Consolidated Statements of Income (unaudited) for the three and six months ended December 25, 2022 and December 26, 2021	3
		Condensed Consolidated Balance Sheets at December 25, 2022 (unaudited) and June 26, 2022	4
		Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the six months ended December 25, 2022 and December 26, 2021	5
		Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended December 25, 2022 and December 26, 2021	6
		Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.		Controls and Procedures	22
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings	23
Item 1A.		Risk Factors	23
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.		Defaults Upon Senior Securities	23
Item 4.		Mine Safety Disclosures	23
Item 5.		Other Information	23
Item 6.		Exhibits	24
Signatures			25

Note F - Earnings per Share (EPS)

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

		Three Months Ended								Six Months Ended
		December 25, 2022				December 26, 2021				December 25, 2022				December 26, 2021
Net income available to common stockholders		$	348			$	457			$	655			$	742
BASIC:
Weighted average common shares			16,351				18,005				16,491				18,005
Net income per common share		$	0.02			$	0.03			$	0.04			$	0.04
DILUTED:
Weighted average common shares			16,351				18,005				16,491				18,005
Convertible notes			—				798				—				798
Dilutive stock options			—				—				—				—
Weighted average common shares outstanding			16,351				18,803				16,491				18,803
Net income per common share		$	0.02			$	0.02			$	0.04			$	0.04

For the three and six months ended December 25, 2022, exercisable options to purchase 111,750 shares of common stock at exercise prices from $3.95 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero.

For the three and six months ended December 26, 2021, exercisable options to purchase 166,750 shares of common stock at exercise prices ranging from $3.11 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero.

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 26, 2022 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 26, 2022. 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”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” 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 25, 2022, franchised and licensed units consisted of the following:

Three Months Ended December 25, 2022

(in thousands, except unit data)

Six Months Ended December 25, 2022

(in thousands, except unit data)

The domestic units were located in 18 states predominantly situated in the southern half of the United States. The international units were located in seven foreign countries.

Basic net income per share decreased $0.01 per share to $0.02 per share for the three months ended December 25, 2022, compared to the comparable period in the prior fiscal year. The Company had net income of $0.3 million for the three months ended December 25, 2022 compared to net income of $0.5 million in the comparable period in the prior fiscal year, on revenues of $2.9 million for the three months ended December 25, 2022 compared to $2.7 million in the comparable period in the prior fiscal year. The increase in revenue was primarily due to increases in franchise royalties, supplier and distributer incentives, and advertising fund contributions. The $0.1 million decrease in net income for the three months ended December 25, 2022, compared to the comparable period of the prior year was primarily the result of a $0.1 million increase in income tax expense.

Basic net income per share of $0.04 per share was unchanged for the six months ended December 25, 2022, compared to the comparable period in the prior fiscal year. The Company had net income of $0.7 million for the six months ended December 25, 2022 compared to net income of $0.7 million in the comparable period in the prior fiscal year, on revenues of $5.9 million for the six months ended December 25, 2022 compared to $5.3 million in the comparable period in the prior fiscal year. The increase in revenue was primarily due to increases in franchise royalties, supplier and distribution incentives, and advertising fund contributions. The $0.1 million decrease in net income for the six months ended December 25, 2022 compared to the comparable period of the prior year was primarily the result of the $0.6 million increase in revenues partially offset by a $0.5 million increase in expenses and a $0.2 million increase in income tax expense.

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 spread rapidly throughout the United States and the world. Federal, state and local responses to the COVID-19 pandemic, as well as our internal efforts to protect customers, franchisees, and employees, severely disrupted our business operations. Further, the COVID-19 pandemic precipitated significant job losses and a national economic downturn that impacted the demand for restaurant food service.

Although most of our domestic restaurants continued to operate under these conditions, we have experienced temporary closures from time to time during the pandemic. During much of the COVID-19 pandemic, we experienced 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 correspondingly decreased supplier rebates and franchise royalties payable to the Company.

In most cases, in-store dining has now resumed subject to seating capacity limitations, social distancing protocols, and/or enhanced cleaning and disinfecting practices. As a result, the adverse impacts of the COVID-19 pandemic have diminished in recent periods. Nonetheless, 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 continue or whether it will recur, what additional restrictions may be enacted, if individuals will be comfortable frequenting our Buffet Units and Pie Five Units, or to what extent off-premises will continue. 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.

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 and Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended December 25, 2022 increased $0.1 million compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA increased $0.2 million compared to the same period of the prior fiscal year. The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):

RAVE RESTAURANT GROUP, INC.

ADJUSTED EBITDA

(In thousands)