UNITED STATES 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 March 26,September 24, 2023 or

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

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)
(Zip Code)

(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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 definitions 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 April 21,October 30, 2023, 14,154,45314,586,566 shares of the issuer’s common stock were outstanding.

RAVE RESTAURANT GROUP, INC.
Index

PART I. FINANCIAL INFORMATION 
    
Item 1. Financial StatementsPage
    
  
Condensed Consolidated Statements of Income (unaudited) forfor the three and nine months ended March 26,September 24, 2023 and March 27,September 25, 2022
3
    
  
Condensed Consolidated Balance Sheets at March 26,September 24, 2023 (unaudited) and June 26, 202225, 2023
4
    
  
Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the ninethree months ended March 26,September 24, 2023 and March 27,September 25, 2022
5
    
  
Condensed Consolidated Statements of Cash Flows (unaudited) for the ninethree months ended March 26,September 24, 2023 and March 27,September 25, 2022
6
    
  
Notes to Unaudited Condensed Consolidated Financial Statements
7
    
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1413
    
Item 3. 
Quantitative and Qualitative Disclosures About Market Risk
2219
    
Item 4. 
Controls and Procedures
2319
    
PART II. OTHER INFORMATION
    
Item 1. 
Legal Proceedings
2420
    
Item 1A. 
Risk Factors
2420
    
Item 2. 
Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
2420
    
Item 3. 
Defaults Upon Senior Securities
2420
    
Item 4. 
Mine Safety Disclosures
2420
    
Item 5. 
Other Information
2420
    
Item 6. 
Exhibits
2521
    
Signatures
  2622

2
Index
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

 Three Months Ended  Nine Months Ended  Three Months Ended 
 
March 26,
2023
  
March 27,
2022
  
March 26,
2023
  
March 27,
2022
  
September 24,
2023
  
September 25,
2022
 
REVENUES: $2,970  $2,620  $8,841  $7,869 
REVENUES $3,089  $3,005 
                        
COSTS AND EXPENSES:                        
Cost of sales  —   1   —   1 
General and administrative expenses  1,486   1,357   4,282   3,940   1,319   1,343 
Franchise expenses  964   705   3,033   2,475   1,172   1,202 
Impairment of long-lived assets and other lease charges  —   —   5   —   —   5 
Bad debt expense  28   1   37   9   25   4 
Interest expense  —   14   1   61   —   1 
Depreciation and amortization expense  54   46   158   138   55   51 
Total costs and expenses  2,532   2,124   7,516   6,624   2,571   2,606 
                        
INCOME BEFORE TAXES  438   496   1,325   1,245   518   399 
Income tax expense  (115)  (3)  (347)  (10)  (132)  (92)
NET INCOME
 $
323  $
493  $
978  $
1,235   386   307 
                        
INCOME PER SHARE OF COMMON STOCK - BASIC: $0.02  $0.03  $0.06  $0.07  $0.03  $0.02 
                        
INCOME PER SHARE OF COMMON STOCK - DILUTED: $0.02  $0.03  $0.06  $0.07  $0.03  $0.02 
                        
Weighted average common shares outstanding - basic  14,154   18,005   15,712   18,005   14,154   16,632 
                        
Weighted average common and potential dilutive common shares outstanding  14,154   18,452   15,712   18,686 
Weighted average common shares outstanding - diluted  14,762   16,632 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3

RAVE RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)

 
March 26,
2023
  
June 26,
2022
  
September 24,
2023
  
June 25,
2023
 
ASSETS            
CURRENT ASSETS            
Cash and cash equivalents $3,867  $7,723  $5,944  $5,328 
Accounts receivable, less allowance for bad debts of $59 and $27, respectively
  1,492   1,981 
Accounts receivable, less allowance for bad debts of $12 and $58, respectively
  1,072   1,145 
Notes receivable, current  165   172   122   105 
Property held for sale  19   — 
Assets held for sale  34   19 
Deferred contract charges, current  32   36   31   33 
Prepaid expenses and other current assets
  181   146   388   204 
Total current assets  5,756   10,058   7,591   6,834 
                
LONG-TERM ASSETS                
Property, plant and equipment, net  283   365 
Operating lease right of use asset, net  1,337   1,664 
Property and equipment, net  231   258 
Operating lease right of use assets, net  1,115   1,227 
Intangible assets definite-lived, net  302   232   312   328 
Notes receivable, net of current portion  96   201   44   28 
Deferred tax asset, net
  5,500   5,772   5,234   5,342 
Deferred contract charges, net of current portion  216   224   202   220 
Total assets $13,490  $18,516  $14,729  $14,237 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts payable - trade $465  $669  $583  $502 
Accrued expenses  747   1,082   1,172   891 
Other current liabilities
  1   81 
Operating lease liability, current  481   490 
Short term loan
  —   30 
Operating lease liabilities, current  446   463 
Deferred revenues, current  342   538   222   342 
Total current liabilities  2,036   2,890   2,423   2,198 
                
LONG-TERM LIABILITIES                
Operating lease liability, net of current portion  1,066   1,421 
Operating lease liabilities, net of current portion  848   958 
Deferred revenues, net of current portion  718   793   602   690 
Total liabilities  3,820   5,104   3,873   3,846 
                
COMMITMENTS AND CONTINGENCIES (SEE NOTE D)      
COMMITMENTS AND CONTINGENCIES (SEE NOTE C)      
                
SHAREHOLDERS’ EQUITY                
Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,090,058 and 25,090,058 shares, respectively; outstanding 14,154,453 and 17,511,430 shares, respectively
  251   251 
Common stock, $0.01 par value; authorized 26,000,000 shares; issued 25,090,058 and 25,090,058 shares, respectively; outstanding 14,154,453 and 14,154,453 shares, respectively
  251   251 
Additional paid-in capital  37,643   37,384   37,808   37,729 
Retained earnings
  1,804   826   2,825   2,439 
Treasury stock at cost        
Shares in treasury: 10,935,605 and 7,578,628 respectively
  (30,028)  (25,049)
Treasury stock, at cost        
Shares in treasury: 10,935,605 and 10,935,605 respectively
  (30,028)  (30,028)
Total shareholders’ equity  9,670   13,412   10,856   10,391 
                
Total liabilities and shareholders’ equity $13,490  $18,516  $14,729  $14,237 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

 Common Stock        Treasury Stock     Common Stock        Treasury Stock    
 Shares  Amount  
Additional
Paid-in
Capital
  
Accumulated
Deficit
  Shares  Amount  Total  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  Shares  Amount  Total 
Balance, June 27, 2021  25,090  $251  $37,215  $(7,196)  (7,085) $(24,537) $5,733 
Balance, June 26, 2022
  25,090  $251  $37,384  $826   (7,579) $(25,049) $13,412 
                                                        
Stock-based compensation expense  —   —
   42   —
   —   —   42   —
   —   86   —   —
   —   86 
Purchase of treasury stock
  —   —   —   —   (1,111)  (1,384)  (1,384)
Net income  —   —   —   285   —   —   285   —   —   —   307   —   —   307 
Balance, September 26, 2021  25,090  $251  $37,257  $(6,911)  (7,085) $(24,537) $6,060 
                            
Stock-based compensation expense  —
   —   43   —   —   —   43 
Net income  —   —   —   457   —   —   457 
Balance, December 26, 2021  25,090  
251  
37,300  
(6,454)  (7,085) 
(24,537) 
6,560 
                            
Stock-based compensation expense
  —
   —   42   —   —
   —   42 
Net income
  —
   —   —   493   —
   —   493 
Balance, March 27, 2022
  25,090   
251  $
37,342  $
(5,961)  
(7,085) $
(24,537) $
7,095 
Balance, September 25, 2022
  25,090  $251  $37,470  $1,133   (8,690) $(26,433) $12,421 

  Common Stock        Treasury Stock    
  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  Shares  Amount  Total 
Balance, June 26, 2022  25,090  $251  $37,384  $826   (7,579) $(25,049) $13,412 
                             
Stock-based compensation expense
  —   —   86   —   —   —   86 
Purchase of treasury stock
  —   —   —   —   (1,111)  (1,384)  (1,384)
Net income  —   —   —   307   —   —   307 
Balance, September 25, 2022  25,090  $251  $37,470  $1,133   (8,690) $(26,433) $12,421 

                            
Stock-based compensation expense  —   —
   87
   —
   —   —
   87
 
Purchase of treasury stock  —   —   —   —   (2,246)  (3,595)  (3,595)
Net income  —   —   —   348   —   —   348 
Balance, December 25, 2022  25,090  $251  $37,557  $1,481   (10,936) $(30,028) $9,261 

                            
Stock-based compensation expense  —
   —   86   —   —
   —   86 
Net income
  —
   —   —   323   —
   —   323 
Balance, March 26, 2023
  25,090  $
251  $
37,643  $
1,804  
(10,936) $
(30,028) $
9,670 
  Common Stock        Treasury Stock    
  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  Shares  Amount  Total 
Balance, June 25, 2023
  25,090  $251  $37,729  $2,439   (10,936) $(30,028) $10,391 
                             
Stock-based  compensation expense
  —   —   79   —   —   —   79 
Net income  —   —   —   386   —   —   386 
Balance, September 24, 2023
  25,090  $251  $37,808  $2,825   (10,936) $(30,028) $10,856 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

 Nine Months Ended  Three Months Ended 
 
March 26, 2023
  
March 27, 2022
  
September 24,
2023
  
September 25,
2022
 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income $978  $1,235  $386  $307 
Adjustments to reconcile net income to cash provided by operating activities:                
Impairment of long-lived assets and other lease charges  5   —   —   5 
Stock-based compensation expense  259   127   79   86 
Depreciation and amortization  105   105   34   35 
Amortization of operating right of use assets  327   314   112   108 
Amortization of intangible assets definite-lived
  53   33   21   16 
Amortization of debt issue costs  —   21 
Allowance for bad debts  37   9   25   4 
Deferred income tax  272   —   108   — 
Changes in operating assets and liabilities:                
Accounts receivable  452   (273)  48   491 
Notes receivable  22   28   (48)  5 
Deferred contract charges  12   (17)  20   9 
Prepaid expenses and other  (35)  65 
Prepaid expenses and other assets
  (184)  38 
Accounts payable - trade  (204)  (29)  81   20 
Accrued expenses  (415)  (175)  281   284 
Operating lease liability  (364)  (347)
Operating lease liabilities  (127)  (120)
Deferred revenues
  (271)  (571)  (208)  (153)
Cash provided by operating activities  1,233   525   628   1,135 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Payments received on notes receivable  90   240   15   30 
Proceeds from sale of assets  5   — 
Purchase of intangible assets definite-lived  (123)  (46)  (5)  (39)
Purchase of property, plant and equipment  (52)  (25)
Cash (used in)/provided by investing activities  (80)  169 
Purchase of property and equipment  (22)  (14)
Cash used in investing activities  (12)  (23)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Purchase of treasury stock  (4,979)  —   —   (1,384)
Payment of convertible notes  —   (1,597)
Payments on short term loan  (30)  (190)  —   (30)
Cash used in financing activities  (5,009)  (1,787)  —   (1,414)
                
Net decrease in cash and cash equivalents  (3,856)  (1,093)
Net increase/(decrease) in cash and cash equivalents  616   (302)
Cash and cash equivalents, beginning of period  7,723   8,330   5,328   7,723 
Cash and cash equivalents, end of period $3,867  $7,237  $5,944  $7,421 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                
CASH PAID FOR:        
CASH (REFUNDED)/PAID FOR:        
Income taxes $90  $8  $(5) $9 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6
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”), 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. 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 26, 2022.25, 2023.

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 Rave Restaurant Group, Inc. and its subsidiaries, all of which are wholly owned. All appropriate inter-company balances and transactions have been eliminated.

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

Fiscal Quarters
The three and nine month periods ended March 26,September 24, 2023 and March 27,September 25, 2022 each contained 13 weeks and 39 weeks, respectively.weeks.

Use of Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 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:

Franchise Revenues

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

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

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

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

7
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 accompanying Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement.agreement as the stores are opened. Area development exclusivity fees that include rights to sub-franchise are amortized as revenue over the term of the contract.

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

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

Rental Income

The Company 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  Three Months Ended 
 March 26, 2023  March 27, 2022  September 24, 2023
  September 25, 2022
 
Franchise royalties $1,295  $1,137  $1,225  $1,214 
Supplier and distributor incentive revenues  1,045   1,056   1,100   1,070 
Franchise license fees  39   36   101   30 
Area development exclusivity fees and foreign master license fees  5   5   4   4 
Advertising funds contributions  528   339   422   466 
Supplier convention funds
  187   172 
Rental income  47   47   46   47 
Other  11   —   4   2 
 $2,970  $2,620  $3,089  $3,005 

  Nine Months Ended 
  March 26, 2023  March 27, 2022 
Franchise royalties $3,680  $3,315 
Supplier and distributor incentive revenues  3,260   3,051 
Franchise license fees  109   106 
Area development exclusivity fees and foreign master license fees  13   14 
Advertising funds contributions  1,448   1,083 
Supplier convention funds  172   143 
Rental income  140   140 
Other  19   17 
  $8,841  $7,869 

Stock-Based Compensation

The Company accounts for stock options using the fair value recognition provisions of the authoritative guidance on share-based payments. The Company uses the Black-Scholes formula to estimate the value of stock-based compensation for options granted to employees and directors and expects to continue to use this acceptable option valuation model in the future. The authoritative guidance also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow.

Restricted stock units (“RSUs”) represent the right to receive shares of common stock upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. Compensation cost for RSUs is measured as an amount equal to the fair value of the RSUs on the date of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with the amount of the expense recognized based on the best estimate of the ultimate achievement level.

8

Note B - Leases


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

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 ten10 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 agreement 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 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.

As of March 26,September 24, 2023, and June 25, 2023, the Company had no Company-owned restaurants.

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 interest 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 the lease 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 for 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 useright-of-use asset, and lease liability will be recognized.

9
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, leasesa lease that, at commencement, have a lease term of 12 months or less and dodoes 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 income statements on a straight-line basis over the lease term.term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those payments in our Condensed Consolidated Statements of Incomeincome statements in the period in which the obligation for those payments is incurred.

The components of total lease expense for the ninethree months ended March 26, September 24, 2023 and September 25, 2022, the majority of which is included in general and administrative expense in the accompanying Condensed Consolidated Statements of Income, are as follows (in thousands)thousands):

  Nine Months Ended 
  March 26, 2023 
Operating lease cost $371 
Rental income  (140)
Total lease expense, net of sublease income $231 

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

Nine Months Ended
March 26, 2023
Cash paid for amounts included in the measurement of lease liabilities$417
  Three Months Ended  Three Months Ended
 
  September 24, 2023  September 25, 2022
 
Operating lease cost $123  $124 
Sublease income  (47)  (47)
Total lease expense, net of sublease income $76  $
77 

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

March 26, 2023
Weighted average remaining lease term 2.3 Years
Weighted average discount rate4.0%
  September 24, 2023  September 25, 2022 
Weighted average remaining lease term 1.8 Years  2.8 Years 
Weighted average discount rate  4.0%  4.0%

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

 Operating Leases  Operating Leases 
2023
 $141 
2024
  511  $370 
2025
  433   433 
2026
  382   382 
Thereafter  191 
2027
  191 
Total operating lease payments $1,658  $1,376 
Less: imputed interest  (111)
  (82)
Total operating lease liability $1,547  $1,294 


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 on our behalf of up to 1,016,000 shares of our common stock in the open market or in privately negotiated transactions. On June 2, 2008, the Company’s board of directors amended the 2007 Stock Purchase Plan to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 2,016,000 shares. On April 22, 2009, the Company’s board of directors amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 3,016,000 shares. On June 28, 2022, 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 5,000,000 shares to a total of 8,016,000 shares. The 2007 Stock Purchase Plan does not have an expiration date.

The following table furnishes information for purchases made pursuant to the 2007 Stock Purchase Plan during fiscal 2023:

Period 
Total Number
of Shares
Purchased
  
Average Price
Paid Per Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
  
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan
 
June 27, 2022 - July 31, 2022
  891,350  $1.20   3,552,399   4,463,601 
August 1, 2022 - August 28, 2022
  219,541   1.35   3,771,940   4,244,060 
August 29, 2022 - September 25, 2022
  0
   0
   3,771,940   4,244,060 
September 26, 2022 - October 30, 2022  0   0   3,771,940   4,244,060 
October 31, 2022 - November 27, 2022  0   0   3,771,940   4,244,060 
November 28, 2022 - December 25, 2022  2,246,086   1.60   6,018,026   1,997,974 
December 26, 2022 - January 29, 2023
  0   0   6,018,026   1,997,974 
January 30, 2023 - February 26, 2023
  0   0   6,018,026   1,997,974 
February 27, 2023 - March 26, 2023
  0   0   6,018,026   1,997,974 
Total  3,356,977  $1.48         

The Company’s ability to purchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company may also purchase shares of our common stock other than pursuant to the 2007 Stock Purchase Plan or other publicly announced plans or programs.

On December 21, 2022, the Company entered into a Stock Purchase Agreement with Hallmark Financial Services, Inc. (“Hallmark”) pursuant to which the Company purchased from certain direct or indirect subsidiaries of Hallmark an aggregate of 2,246,086 shares of the Company’s common stock at a price of $1.60 per share, resulting in an aggregate purchase price of $3,593,738. The price per share represented the average closing price of the Company’s common stock on the Nasdaq Capital Market for the preceding 15 trading days. The transaction was approved by the Audit Committee of the Company, which consists of all of the independent directors of the Company. The Chairman of the Company, Mark E. Schwarz, who is also the Executive Chairman and Chief Executive Officer of Hallmark, recused himself from all deliberations with respect to the Stock Purchase Agreement with Hallmark.

10

Note D - Commitments and Contingencies

On January 6, 2020, the Company’s former Chief Executive Officer, Scott Crane, filed suit in the U.S. District Court for the Eastern District of Texas alleging various claims in connection with the Company’s termination of his employment in July 2019. In general, the suit asserted that the Company terminated Mr. Crane for the purpose of depriving him of certain equity compensation that would otherwise have become due to him on October 15, 2019. The case proceeded to a jury trial, which resulted in a verdict in favor of Crane on his breach of contract claim. On February 9, 2022, the Court entered a $1.9 million judgment against the Company inclusive of attorney fees, court costs and pre-judgment interest. The Company has filed an appeal of the judgment to the Fifth Circuit Court of Appeals. There are three possibilities upon decision by the Fifth Circuit Court of Appeals: the judgment could be affirmed; the judgment could be reversed and the matter sent for a new trial; or, the judgment could be reversed and judgment entered in favor of the Company. Due to the range of possible decisions by the Fifth Circuit Court of Appeals, it is impossible to predict the ultimate outcome at this time.

The Company is subject to other 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.


Note ED - Stock-Based Compensation

Stock Options:

For the three and nine months ended March 26,September 24, 2023 the Company recognized stock-based compensation expense related to stock options of $4 thousand and $11 thousand, respectively.  For the three and nine months ended March 27,September 25, 2022, the Company recognized stock-based compensation expense related to stock options of zero and zero,$4 thousand, respectively. As of March 26,September 24, 2023, there was $4 thousand 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:

 Nine Months Ended  Three Months Ended 
 March 26, 2023  March 27, 2022  
September 24,
2023
  
September 25,
2022
 
 Shares  Shares  Shares  Shares 
Outstanding at beginning of year 111,750  166,750   151,750   111,750 
              
Granted 40,000  —   —   40,000 
Exercised —  —   —   — 
Forfeited/Canceled/Expired  —   —   (8,664)  — 
              
Outstanding at end of period  151,750   166,750   143,086   151,750 
              
Exercisable at end of period  111,750   166,750   143,086   111,750 

Restricted Stock Units:

For the three and nine months ended March 26,September 24, 2023 the Company had stock-based compensation expense of $82 thousand and $248 thousand, respectively, related to RSUs. For the three and nine months ended March 27,September 25, 2022, the Company had stock-based compensation expense related to RSUs of $42$79 thousand and $127$82 thousand, respectively, related to RSUs.respectively. As of March 26,September 24, 2023, there was $330$138 thousand unamortized stock-based compensation expense related to RSUs.

As of September 24, 2023 and September 25, 2022, the RSUs will be amortized during the next one and 13 months, respectively. A summary of the status of restricted stock units as of March 26,September 24, 2023, and changes during the ninethree months then ended is presented below:

Unvested at June 26, 2022
  
Three Months Ended
 
  
September 24,
2023
  
September 25,
2022
 
Unvested at beginning of year  885,687   885,687 
Performance Adjustment  (25,223)  
—
 
Granted  —   
—
 
Issued  —   
—
 
Forfeited  —   
—
 
Unvested at end of period  860,464   
885,687
 
885,688
Granted—
Issued
—
Forfeited—
Unvested at March 26, 2023
885,688

1110

Note FE - 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  Nine Months Ended  Three Months Ended 
 March 26, 2023  March 27, 2022  March 26, 2023  March 27, 2022  September 24, 2023
  September 25, 2022
 
Net income available to common stockholders $323  $493 $978  $1,235
                
Net income available to common shareholders $386  $307 
BASIC:                        
Weighted average common shares  14,154   18,005   15,712   18,005   14,154   16,632 
                        
Net income per common share $0.02  $0.03 $0.06  $0.07 $0.03  $0.02 
                        
DILUTED:                        
Weighted average common shares  14,154   18,005   15,712   18,005   14,154   16,632 
Convertible notes  —   447   —   681 
Dilutive RSU  589
   —
 
Dilutive stock options  —   —   —   —   19  — 
Weighted average common shares outstanding  14,154   18,452   15,712   18,686   14,762   16,632 
                        
Net income per common share $0.02  $0.03 $0.06  $0.07 $0.03  $0.02 

For the three and nine months ended March 26, September 24, 2023, exercisable options to purchase 103,086 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 months ended September 24, 2023, 90,625 RSUs were excluded from the computation of diluted EPS because performance criteria is not probable at period end.

For the three months ended September 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 nine months ended March 27, 2022, exercisable options to purchase 166,750 shares of common stock at exercise prices ranging from $3.11$3.95 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero. For the three months ended September 25, 2022, zero RSUs were excluded from the computation of diluted EPS.


Note GF - Income Taxes

For the three and nine months ended March 26,September 24, 2023, the Company recorded an income tax expense of $115 thousand and $347 thousand, respectively.$132 thousand. For the three and nine months ended March 27,September 25, 2022, the Company recorded an income tax expense of $3 thousand and $10 thousand, respectively.$92 thousand. For the three months ended March 26,September 24, 2023, the federal and state tax expense were $91$108 thousand and $24 thousand, respectively. For the ninethree months ended March 26, 2023,September 25, 2022, the federal and state tax expense were $272$82 thousand and $75$10 thousand, respectively.


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 the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets.


Note HG - Segment Reporting

The Company has threetwo reportable operating segments as determined by management using the “management approach” as defined by ASC 280 Disclosures about Segments of an Enterprise and Related Information: (1) Pizza Inn Franchising and (2) Pie Five Franchising and (3) Company-Owned Restaurants.Franchising. 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 nonrecurring items.


The Pizza Inn and Pie Five Franchising segments establish franchisees, licensees and territorial rights. Revenue for these segments are derived from franchise royalties, franchise fees, sale of area development and foreign master license rights and incentive payments from third party suppliers and distributors, advertising funds, and supplier convention funds.distributors. Assets for these segments include equipment, furniture and fixtures.



The Company-Owned Restaurants 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. As of March 26,September 24, 2023, the Company did not operate any Company-owned restaurants.



Corporate administration and other 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.

1211
Summarized in the following tables are net sales and operating revenues, depreciation and amortization expense, and income from continuing operations before taxes capital expenditures and assets for the Company’s reportable segments as of the three and nine months ended March 26,September 24, 2023 and March 27,September 25, 2022 (in thousands):

 Three Months Ended  Nine Months Ended  Three Months Ended 
 March 26, 2023  March 27, 2022  March 26, 2023  March 27, 2022  September 24, 2023
  September 25, 2022 
Net sales and operating revenues:                  
Pizza Inn Franchising $2,450  $2,091  $7,270  $6,279  $2,604  $2,469 
Pie Five Franchising  473   482   1,431   1,450   438   488 
Company-Owned Restaurants  —   —   —   — 
Corporate administration and other  47   47   140   140   47
   48
 
Consolidated revenues $2,970  $2,620  $8,841  $7,869  $3,089  $3,005 
                        
Depreciation and amortization:                        
Corporate administration and other $54  $46  $158  $138  $
55  $
51 
Depreciation and amortization $54  $46  $158  $138  $55  $51 
                        
Income before taxes:                        
Pizza Inn Franchising $1,701  $1,648  $4,907  $4,506  $1,661  $1,511 
Pie Five Franchising  258   220   761   748   209   244 
Company-Owned Restaurants  —  (1)  —  (3)
Combined  1,959   1,867   5,668   5,251   1,870   1,755 
Corporate administration and other  (1,521)  (1,371)  (4,343)  (4,006)  (1,352)  (1,356)
Income before taxes $438  $496  $1,325  $1,245  $518  $399 
                        
Geographic information (revenues):                        
United States $2,910  $2,547  $8,638  $7,643  $3,036  $2,929 
Foreign countries  60   73   203   226   53   76 
Consolidated revenues
 $2,970  $2,620  $8,841  $7,869  $3,089  $3,005 

1312

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 26, 202225, 2023 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, 2022.25, 2023. 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 March 26,September 24, 2023, franchised and licensed units consisted of the following:

Three Months Ended March 26,September 24, 2023
(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  122  $25,689   30  $4,998   152  $30,687 
                         
International Franchised  33       —       33     

Nine Months Ended March 26, 2023
(in thousands, except unit data)

 Pizza Inn Pie Five All Concepts  Pizza Inn Pie Five All Concepts 
 
Ending
Units
 
Retail
Sales
 
Ending
Units
 
Retail
Sales
 
Ending
Units
 
Retail
Sales
  
Ending
Units
 
Retail
Sales
 
Ending
Units
 
Retail
Sales
 
Ending
Units
 
Retail
Sales
 
Domestic Franchised/Licensed  122  $73,301   30  $15,098   152  $88,399  111  $26,030  26  $4,767  137  $30,797 
                                          
International Franchised  33       —       33      22     —     22    

The domestic units were located in 1817 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 decreasedincreased $0.01 per share to $0.02$0.03 per share for the three months ended March 26,September 24, 2023, compared to the comparable period in the prior fiscal year. The Company had net income of $0.3$0.4 million for the three months ended March 26,September 24, 2023 compared to net income of $0.5$0.3 million in the comparable period in the prior fiscal year, on revenues of $3.0$3.1 million for the three months ended March 26,September 24, 2023 compared to $2.6$3.0 million in the comparable period in the prior fiscal year. The increase in revenue was primarily due to increases in default and closed store revenues, franchise royalties, and advertising fund contributions. The $0.2 million decrease in net income for the three months ended March 26, 2023, 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 decreased $0.01 per share to $0.06 per share for the nine months ended March 26, 2023, compared to the comparable period in the prior fiscal year. The Company had net income of $1.0 million for the nine months ended March 26, 2023 compared to net income of $1.2 million in the comparable period in the prior fiscal year, on revenues of $8.8 million for the nine months ended March 26, 2023 compared to $7.9 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 $0.2 million decrease in net income for the nine months ended March 26, 2023 compared to the comparable period of the prior year was primarily the result of the $1.0 million increase in revenues partially offset by a $0.9 million increase in expenses and a $0.3 million increase in income tax expense.distributor incentives.

14
Index
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 longTherefore, despite 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. Anyofficial end of these changes could materially adversely affect the Company’s future financial performance.  However,pandemic, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.

13
Index
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 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.

15
Index

●“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks) divided by store weeks in the period.

●“Restaurant operating cash flow” represents the pre-tax income earned by Company-owned restaurants before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) impairment and other lease charges, and (4) 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.

EBITDA and Adjusted EBITDA

Adjusted EBITDA remained relatively stable at $0.6 million for the fiscal quarter ended March 26,September 24, 2023 compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA increased $0.1 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)

 Three Months Ended Nine Months Ended  Three Months Ended 
 March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022  September 24, 2023 September 25, 2022 
Net income $323  $493  $978  $1,235  $386  $307 
Interest expense  —   14   1   61  —  1 
Income taxes  115   3   347   10  132  92 
Depreciation and amortization  54   46   158   138   55   51 
EBITDA $492  $556  $1,484  $1,444  $573  $451 
Stock-based compensation expense  86   42   259   127  79  86 
Severance  —   —   —   33 
Impairment of long-lived assets and other lease charges  —   —   5   —  —  5 
Franchisee default and closed store revenue  (10)  (9)  (23)  (21)  (64)  — 
Closed and non-operating store costs  —   1   —   3 
Adjusted EBITDA $568  $590  $1,725  $1,586  $588  $542 

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Index
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 Nine Months Ended  Three Months Ended 
 March 26, 2023 March 27, 2022 March 26, 2023 March 27, 2022  September 24, 2023 September 25, 2022 
Pizza Inn Retail Sales - Total Domestic Units (in thousands, except unit data) (in thousands, except unit data)  (in thousands, except unit data) 
Domestic Units              
Buffet Units - Franchised $24,303  $20,676  $68,967  $58,754  $25,011  $22,441 
Delco/Express Units - Franchised  1,356   1,494   4,180   4,660  999  1,482 
PIE Units - Licensed  30   58   154   176   20   56 
Total Domestic Retail Sales $25,689  $22,228  $73,301  $63,590  $26,030  $23,979 
                      
Pizza Inn Comparable Store Retail Sales - Total Domestic $25,321  $$ 21,906  $70,366  $62,705  24,596  23,028 
                      
Pizza Inn Average Units Open in Period                      
Domestic Units                      
Buffet Units - Franchised  73   70   73   71  75  72 
Delco/Express Units - Franchised  43   49   44   51  37  47 
PIE Units - Licensed  8   9   9   10   4   9 
Total Domestic Units  124   128   126   132   116   128 

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Index
Pizza Inn total domestic retail sales increased by $3.5$2.1 million, or 15.6%8.6%, for the three months ended March 26,September 24, 2023 when compared to the same period of the prior year. The increase in domestic retail sales was primarily the result of increased buffet units versus the diminished impact of COVID-19year ago period and increased customer engagement. Pizza Inn domestic comparable store retail sales increased by $3.4$1.6 million, or 15.6%6.8%, for the same reason. For the nine months ended March 26, 2023, the improvements in domestic retail sales and comparable store retail sales were primarily due to the diminished impact of COVID-19 and increased customer engagement.

The following chart summarizes Pizza Inn restaurant activity for the three and nine months ended March 26,September 24, 2023:

  Three Months Ended March 26, 2023 
  
Beginning
Units
  Opened  
Concept
Change
  Closed  
Ending
Units
 
Domestic Units               
Buffet Units - Franchised  73   —   —   —   73 
Delco/Express Units - Franchised  44   —   —   3   41 
PIE Units - Licensed  8   —   —   —   8 
Total Domestic Units  125   —   —   3   122 
                     
International Units (all types)  33   —   —   —   33 
                     
Total Units  158   —   —   3   155 

 Nine Months Ended March 26, 2023  Three Months Ended September 24, 2023 
 
Beginning
Units
 Opened 
Concept
Change
 Closed 
Ending
Units
  
Beginning
Units
 Opened 
Concept
Change
 Closed 
Ending
Units
 
Domestic Units               
Domestic Units:               
Buffet Units - Franchised 72  1  —  —  73  77  —  —  3  74 
Delco/Express Units - Franchised 47  —  —  6  41  41  —  —  8  33 
PIE Units - Licensed  9   —   —   1   8   5   —   —   1   4 
Total Domestic Units 128  1  —  7  122  123  —  —  12  111 
                              
International Units (all types) 31  2  —  —  33   34   —   —   12   22 
                                   
Total Units  159   3   —   7   155   157   —   —   24   133 

There was a net decrease of three and six units in the totalThe domestic Pizza Inn unit countunits decreased by 12 units during the three and nine months ended March 26, 2023, respectively.September 24, 2023. For the three and nine months ended March 26,September 24, 2023, the number of international Pizza Inn units remained stable and increaseddecreased by two12 units respectively.due to the termination of the Company’s master licensee in Saudi Arabia. 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 and Company-owned restaurants that management believes are useful in evaluating performance:

 Three Months Ended Nine Months Ended  Three Months Ended 
 
March 26,
2023
 
March 27,
2022
 
March 26,
2023
 
March 27,
2022
  
September 24,
2023
 
September 25,
2022
 
 (in thousands, except unit data) (in thousands, except unit data)  (in thousands, except unit data) 
Pie Five Retail Sales - Total Units                  
Domestic Units - Franchised $$ 4,998  $$ 4,870  $$ 15,098  $$ 14,907 
Domestic Units - Company-owned  —   —   —   — 
Total Domestic Retail Sales $$ 4,998  $$ 4,870  $$ 15,098  $$ 14,907  $4,767  $5,243 
                  
Pie Five Comparable Store Retail Sales - Total $$ 4,756  $$ 4,399  $$ 14,399  $$ 13,381  $4,717  $4,660 
                  
Pie Five Average Units Open in Period                  
Domestic Units - Franchised 31  34  31  33 
Domestic Units - Company-owned  —   —   —   — 
Total Domestic Units  31   34   31   33  27  31 

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Pie Five system-widedomestic total retail sales increased $0.1decreased $0.5 million, or 2.6%9.1%, for the three months ended March 26,September 24, 2023 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 3431 to 31.27. Comparable store retail sales increased $0.4$0.1 million, or 8.1%1.2%, during the thirdfirst quarter of fiscal 20232024 compared to the same period of the prior year. For the three months ended March 26,September 24, 2023, the decline in domestic retail sales is due to decreased domestic units. For the three months ended September 24, 2023, the increase in domestic retail sales  were primarily the result of the increase in comparable store retail sales primarily resulting from the diminished impact of COVID-19 and increased customer engagement, offset by a decrease in store count. For the nine months ended March 26, 2023, the improvements in domestic retail sales and comparable store retail sales were primarilyis due to the diminished impact of COVID-19 and increased customer engagement.

The following chart summarizes Pie Five restaurant activity for the three and nine months ended March 26,September 24, 2023:

  Three Months Ended March 26, 2023 
  
Beginning
Units
  Opened  Transfer  Closed  
Ending
Units
 
                
Domestic - Franchised  31   —   —   1   30 
Domestic - Company-owned  —   —   —   —   — 
Total Domestic Units  31   —   —   1   30 

  Nine Months Ended March 26, 2023 
  
Beginning
Units
  Opened  Transfer  Closed  
Ending
Units
 
                
Domestic - Franchised  31   —   —   1   30 
Domestic - Company-owned  —   —   —   —   — 
Total Domestic Units  31   —   —   1   30 
  Three Months Ended September 24, 2023 
  
Beginning
Units
  Opened  Transfer  Closed  
Ending
Units
 
                
Total Domestic Units  27   —   —   1   26 

There was a net decrease ofThe Pie Five units decreased by one unit in the total domestic Pie Five unit count during the three and nine months ended March 26,September 24, 2023. We believe that Pie Five units will eventually increasedecrease modestly in future periods.

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 nine months ended March 26,September 24, 2023 and March 27,September 25, 2022 (in thousands):

Three Months Ended March 26, 2023 and March 27, 2022

 
Pizza Inn
Franchising
 
Pie Five
Franchising
 
Company-Owned
Restaurants
 Corporate Total  
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  Fiscal Quarter Ended Fiscal Quarter Ended Fiscal Quarter Ended Fiscal Quarter Ended Fiscal Quarter Ended 
 
March 26,
2023
 
March 27,
2022
 
March 26,
2023
 
March 27,
2022
 
March 26,
2023
 
March 27,
2022
 
March 26,
2023
 
March 27,
2022
 
March 26,
2023
 
March 27,
2022
  
September
24,
2023
 
September
25,
2022
 
September
24,
2023
 
September
25,
2022
 
September
24,
2023
 
September
25,
2022
 
September
24,
2023
 
September
25,
2022
 
September
24,
2023
 
September
25,
2022
 
REVENUES:                                                            
Franchise and license revenues $2,450  $2,091  $462  $482  $—  $—  $—  $—  $2,912  $2,573  $2,604  $2,469  $435  $488  $—  $—  $—  $—  $3,039  $2,957 
Rental income —  —  —  —  —  —  47  47  47  47  —  —  —  —  —  —  47  47  47  47 
Interest income and other  —   —   11   —   —   —   —   —   11   —   —   —   3   —   —   —   —   1   3   1 
Total revenues 2,450  2,091  473  482  —  —  47  47  2,970  2,620  2,604  2,469  438  488  —  —  47  48  3,089  3,005 
                                                            
COSTS AND EXPENSES:                                                            
Cost of sales —  —  —  —  —  1  —  —  —  1 
General and administrative expenses —  —  —  —  —  —  1,486  1,357  1,486  1,357  —  —  —  —  —  —  1,319  1,343  1,319  1,343 
Franchise expenses 749  443  215  262  —  —  —  —  964  705  943  958  229  244  —  —  —  —  1,172  1,202 
Impairment of long-lived assets and other lease charges —  —  —  —  —  —  —  5  —  5 
Bad debt expense —  —  —  —  —  —  28  1  28  1  —  —  —  —  —  —  25  4  25  4 
Interest expense —  —  —  —  —  —  —  14  —  14  —  —  —  —  —  —  —  1  —  1 
Depreciation and amortization expense  —   —   —   —   —   —   54   46   54   46   —   —   —   —   —   —   55   51   55   51 
Total costs and expenses 749  443  215  262  —  1  1,568  1,418  2,532  2,124  943  958  229  244  —  —  1,399  1,404  2,571  2,606 
                                                                                
INCOME/(LOSS) BEFORE TAXES $1,701  $1,648  $258  $220  $—  $(1) $(1,521) $(1,371) $438  $496  $1,661  $1,511  $209  $244  $—  $—  $(1,352) $(1,356) $518  $399 

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Nine Months Ended March 26, 2023 and March 27, 2022

  
Pizza Inn
Franchising
  
Pie Five
Franchising
  
Company-Owned
Stores
  Corporate  Total 
  Fiscal Year-to-Date  Fiscal Year-to-Date  Fiscal Year-to-Date  Fiscal Year-to-Date  Fiscal Year-to-Date 
  
March 26,
2023
  
March 27,
2022
  
March 26,
2023
  
March 27,
2022
  
March 26,
2023
  March 27,
2022		  
March 26,
2023
  
March 27,
2022
  
March 26,
2023
  
March 27,
2022
 
REVENUES:                              
Franchise and license revenues $7,270  $6,279  $1,412  $1,433  $—  $—  $—  $—  $8,682  $7,712 
Rental Income  —   —   —   —   —   —   140   140   140   140 
Interest income and other  —   —   19   17   —   —   —   —   19   17 
Total revenues  7,270   6,279   1,431   1,450   —   —   140   140   8,841   7,869 
                                         
COSTS AND EXPENSES:                                        
Cost of sales  —   —   —   —   —   1   —   —   —   1 
General and administrative expenses  —   —   —   —   —   2   4,282   3,938   4,282   3,940 
Franchise expenses  2,363   1,773   670   702   —   —   —   —   3,033   2,475 
Impairment of long-lived assets and other lease charges  —   —   —   —   —   —   5   —   5   — 
Bad debt expense  —   —   —   —   —   —   37   9   37   9 
Interest expense  —   —   —   —   —   —   1   61   1   61 
Depreciation and amortization expense  —   —   —   —   —   —   158   138   158   138 
Total costs and expenses  2,363   1,773   670   702   —   3   4,483   4,146   7,516   6,624 
                                         
INCOME/(LOSS) BEFORE TAXES $4,907  $4,506  $761  $748  $—  $(3) $(4,343) $(4,006) $1,325  $1,245 

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Index
Revenues:

Revenues are derived from franchise royalties, franchise fees and supplier and distributor incentives, advertising funds, area development exclusivity fees and foreign master license fees, supplier convention funds, sublease rental income, interest and other income, and sales by Company-owned restaurants. 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 the three month period ended March 26,September 24, 2023 and for the same period in the prior fiscal year were $3.1 million and $3.0 million, and $2.6 million, respectively. The increase in total revenues was driven by increases in Pizza Inn franchise and license fees.

Total revenues for the nine month period ended March 26, 2023 and for the same period in the prior fiscal year were $8.8 million and $7.9 million, respectively. The increase in total revenues was driven by increases in Pizza Inn franchise and license fees.

Pizza Inn Franchise and License

Pizza Inn franchise revenues increased by $0.1 million to $2.5$2.6 million for the three month period ended March 26,September 24, 2023 from $2.1 million foras compared to the same period of the prior fiscal year. Pizza Inn franchise revenues increased to $7.3 million for the nine month period ended March 26, 2023 from $6.3 million for the same period ofin the prior fiscal year. The increases were primarily5.5% increase was driven by increases in supplier incentives, domestic royalties and advertising fund revenues.

Pie Five Franchise and License

Pie Five franchise revenues remained relatively stable at $0.5decreased by $0.1 million to $0.4 million for the three month period ended March 26,September 24, 2023 as compared to the same period ofin the prior fiscal year. Pie Five franchise revenues remained relatively stable at $1.4 million for the nine month period ended March 26, 2023 as compared to the same period of the prior fiscal year.The 10.2% decrease was driven by decreases in supplier incentives, domestic royalties and advertising fund revenues.

General and Administrative Expenses

Total general and administrative expenses increased $0.1 million to $1.5remained relatively stable at $1.3 million for the three month period ended March 26,September 24, 2023 as compared to $1.4 million for the same period of the prior fiscal year. Total general and administrative expenses increased $0.3 million to $4.3 million for the nine month period ended March 26, 2023 compared to $4.0 million for the same period of the prior fiscal year. The increases1.8% decrease in total general and administrative expenses during both the three and nine month periods wereperiod was primarily the result of increaseddecreased corporate expenses.

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 increased to $1.0remained relatively stable at $1.2 million for the three month period ended March 26,September 24, 2023 as compared to $0.7 million for the same period of the prior fiscal year. Total franchise expenses increased to $3.0 million for the nine month period ended March 26, 2023 compared to $2.5 million for the same period of the prior fiscal year. The increase2.5% decrease was primarily due to an increasea decrease in payroll and related, advertising and travel costs.recruiting fees.

Impairment of Long-lived Assets and Other Lease Charges

Impairment of long-lived assets and other lease charges waswere zero for the three month periodmonths ended March 26,September 24, 2023 compared to zero$5 thousand for the same fiscal period of the prior fiscal year. Impairment of long-lived assets and other lease charges was $5 thousand for the nine month period ended March 26, 2023 compared to zero for the same period of the prior fiscal year. The increasedecrease was primarily due to impaired beverage equipment.equipment in the prior period.

Bad Debt Expense

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high risk accounts receivable. For the three month period ended March 26,September 24, 2023, bad debt expense was $28$25 thousand compared to the bad debt expense of $1$4 thousand for the same period in the prior fiscal year. Bad debt expense for the nine month period ended March 26, 2023, increased $28 thousandyear due to $37 thousand compared to the comparable period in the prior fiscal year.international receivables.

Interest Expense

Interest expense decreased $14 thousand towas zero for the three month periodmonths ended March 26,September 24, 2023 compared to $1 thousand for the same fiscal period of the prior year. Interest expense decreased $60 thousand to $1 thousand for the nine month period ended March 26, 2023 compared to the same fiscal period of the prior year. In both cases, the decrease was primarily the result of the payment of all outstanding convertible notes during the third quarter of fiscal 2022.

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Index
Amortization and Depreciation Expense

Amortization and depreciation expense increased slightly$4 thousand to $55 thousand for the three and nine months ended March 26,September 24, 2023, compared to $51 thousand in the same periods of the prior year. In both cases, theThe increase was primarily the result of higher amortization of intangible assets.

Provision for Income Taxes

For the three and nine months ended March 26,September 24, 2023 the Company recorded an income tax expense of $115 thousand and $347 thousand, respectively. For the three and nine months ended March 27,September 25, 2022, the Company recorded an income tax expense of $3$132 thousand and $10$92 thousand, respectively. respectively, both of which are mostly attributable to current federal taxes. The increase for both the three and nine months ended as of March 26, 2023change is due to the full recognition of the Company’s deferred tax asset which occurred during the fourth quarter of 2022. For the nine months ended March 26, 2023, the federal and state tax expense were $272 thousand and $75 thousand, respectively.increased income before taxes.

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Index
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 the valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets.

Liquidity and Capital Resources

During the ninethree month period ended March 26,September 24, 2023, the Company'sCompany’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, share based compensation, and changes in working capital. Cash provided by operating activities was $1.2$0.7 million for the ninethree month period ended March 26,September 24, 2023 compared to cash provided by operating activities of $0.5$1.1 million for the ninethree month period ended March 27,September 25, 2022. The primary driver of increaseddecreased operating cash flow during the ninethree month period ended March 26,September 24, 2023 was increaseddecreased collections of accounts receivable related to the employee retention credit.

Cash flows from investing activities reflect net proceeds from the sale of assets and capital expenditures for the purchase of Company assets and intangibles, and payments received on notes receivable.assets. Cash used in investing activities during the ninethree month period ended March 26,September 24, 2023 was $0.1 million$12 thousand compared to cash provided byused in investing activities of $0.2 million$23 thousand for the ninethree months ended March 27,September 25, 2022.

Cash flows used in financing activities generally reflect changes in the Company'sCompany’s stock and debt activity during the period. Net cash used inby financing activities was $5.0 millionzero for the ninethree month period ended March 26,September 24, 2023 compared to net cash used inby financing activities of $1.8$1.4 million for the ninethree month period ended March 27,September 25, 2022. Net cash used by financing activities for the ninethree months ended March 26, 2023September 25, 2022 was primarily attributable to repurchases of the Company'sCompany’s common stock.

Management believes the cash on hand combined with net cash provided by operations will be sufficient to fund operations for the next 12 months and beyond.

Convertible Notes

On March 3, 2017, the Company completed a registered shareholder rights offering of its 4% Convertible Senior Notes Due 2022 (“Notes”). Shareholders exercised subscription rights to purchase all 30,000 of the Notes at the par value of $100 per Note, resulting in gross offering proceeds to the Company of $3.0 million.

The Notes bore interest at the rate of 4% per annum on the principal or par value of $100 per note, payable annually in arrears on February 15 of each year, commencing February 15, 2018. Interest was payable in cash or, at the Company’s discretion, in shares of Company common stock. The Notes were secured by a pledge of all outstanding equity securities of our two primary direct operating subsidiaries. The Notes matured on February 15, 2022, at which time all principal and unpaid interest was paid in cash. Therefore, as of March 26, 2023, there were no Notes outstanding.

Employee Retention Credit

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was signed into law.  The CAA expanded eligibility for an employee retention credit for companies impacted by the COVID-19 pandemic with fewer than five hundred employees and at least a twenty percent decline in gross receipts compared to the same quarter in 2019, to encourage retention of employees. This payroll tax credit was a refundable tax credit against certain federal employment taxes. For the fiscal year ended June 26, 2022, the Company recorded $0.7 million of other income for the employee retention credit, $0.6 million of which was collected in the first quarter of fiscal 2023.

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Index
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 bad debtsdoubtful receivables to allow for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from the Company’s estimates.

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.

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. 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.

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Index
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 assesses 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 athe 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.

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 March 26,September 24, 2023 and March 27,September 25, 2022, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.

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Index
Item 4. Controls and Procedures

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

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

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Index

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On January 6, 2020, the Company’s former Chief Executive Officer, Scott Crane, filed suit in the U.S. District Court for the Eastern District of Texas alleging various claims in connection with the Company’s termination of his employment in July 2019. In general, the suit asserted that the Company terminated Mr. Crane for the purpose of depriving him of certain equity compensation that would otherwise have become due to him on October 15, 2019. The case proceeded to a jury trial, which resulted in a verdict in favor of Crane on his breach of contract claim. On February 9, 2022, the Court entered a $1.9 million judgment against the Company inclusive of attorney fees, court costs and pre-judgment interest. The Company has filed an appeal of the judgment to the Fifth Circuit Court of Appeals. There are three possibilities upon decision by the Fifth Circuit Court of Appeals: the judgment could be affirmed; the judgment could be reversed and the matter sent for a new trial; or, the judgment could be reversed and judgment entered in favor of the Company. Due to the range of possible decisions by the Fifth Circuit Court of Appeals, it is impossible to predict the ultimate outcome at this time.

The Company is subject to othervarious claims and legal actions incontingencies related to employment agreements, franchise disputes, lawsuits, taxes, food product purchase contracts and other matters arising out of the ordinarynormal course of its business. The CompanyManagement believes that allany such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company’s annual results of operations cash flows or financial condition if decided in a manner that is unfavorable to the Company.

Item 1A. Risk Factors

Not required for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities

On May 23, 2007, the Company’s board of directors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase on our behalf of up to 1,016,000 shares of our common stock in the open market or in privately negotiated transactions. On June 2, 2008, the Company’s board of directors amended the 2007 Stock Purchase Plan to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 2,016,000 shares. On April 22, 2009, the Company’s board of directors of the Company again amended the 2007 Stock Purchase Plan by increasingagain to increase the aggregate number of shares of common stock the Company may repurchase under the planby 1,000,000 shares to a total of 3,016,000 shares. On June 28, 2022, the Company’s board of directors again amended the 2007 Stock Purchase Plan again to increase the number of shares of common stock the Company may repurchase by 5,000,000 shares to a total of 8,016,000 shares. During the sixthree months ended March 26,September 24, 2023, the Company repurchased 3,356,977zero outstanding shares of its common stock leaving 1,997,974 shares that may yet be repurchased under the 2007 Stock Purchase Plan.

The Company’s ability to repurchase shares of our common stock is subject to various laws, regulations and policies as well as the rules and regulations of the SEC. Subsequent to March 26,September 24, 2023, the Company has not repurchased any outstanding shares but may make further repurchases under the 2007 Stock Purchase Plan. The Company may also repurchase shares of the Company'sCompany’s common stock other than pursuant to the 2007 Stock Purchase Plan or other publicly announced plans or programs.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits


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.


3.Exhibits:

3.1
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).
  
3.2
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).
4.1
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).
10.1
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).*
10.2
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).*
10.3
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).*
10.4
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).*
10.5
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).*
10.6
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).*
10.8
Letter agreement dated November 4, 2019, between Rave Restaurant Group, Inc. and Mike Burns (filed as Exhibit 10.1 to Form 8-K filed November 15, 2019 and incorporated herein by reference).*
10.9
Letter agreement dated June 16, 2021, between Rave Restaurant Group, Inc. and Clinton Fendley (filed as Exhibit 10.1 to Form 8-K filed June 17, 2021 and incorporated herein by reference).*
  
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.
  
101Interactive data files pursuant to Rule 405 of Regulation S-T.

*Management contract or compensatory plan or agreement.
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21
SIGNATURES

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

 RAVE RESTAURANT GROUP, INC.
 (Registrant) 
    
 By:/s/ Brandon L. Solano 
  Brandon L. Solano 
  Chief Executive Officer 
  (principal executive officer) 
    
 By:/s/ Clinton D. Fendley 
  Clinton D. Fendley 
  Chief Financial Officer 
  (principal financial officer) 
    
Dated: May 4,November 2, 2023   


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