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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, 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, 2023, 14,154,453 shares of the issuer’s common stock were outstanding.

RAVE RESTAURANT GROUP, INC.
Index

PART I. FINANCIAL INFORMATION |
Item 1. |  | Financial Statements | Page
|  | Condensed Consolidated Statements of Income (unaudited) for the three and nine months ended March 26, 2023 and March 27, 2022 | 3
|  | Condensed Consolidated Balance Sheets at March 26, 2023 (unaudited) and June 26, 2022 | 4
|  | Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the nine months ended March 26, 2023 and March 27, 2022 | 5
|  | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended March 26, 2023 and March 27, 2022 | 6
|  | Notes to Unaudited Condensed Consolidated Financial Statements | 7
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk | 22
Item 4. |  | Controls and Procedures | 23
PART II. OTHER INFORMATION
Item 1. |  | Legal Proceedings | 24
Item 1A. |  | Risk Factors | 24
Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds | 24
Item 3. |  | Defaults Upon Senior Securities | 24
Item 4. |  | Mine Safety Disclosures | 24
Item 5. |  | Other Information | 24
Item 6. |  | Exhibits | 25
Signatures |  |  | 26

2

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

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3

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

|  | March 26, 2023 |  |  | June 26, 2022 |
ASSETS |  |  |  |  |  |
CURRENT ASSETS |  |  |  |  |  |
Cash and cash equivalents |  | $ | 3,867 |  |  | $ | 7,723 |
Accounts receivable, less allowance for bad debts of $59 and $27, respectively |  |  | 1,492 |  |  |  | 1,981 |
Notes receivable, current |  |  | 165 |  |  |  | 172 |
Property held for sale |  |  | 19 |  |  |  | — |
Deferred contract charges, current |  |  | 32 |  |  |  | 36 |
Prepaid expenses and other current assets |  |  | 181 |  |  |  | 146 |
Total current assets |  |  | 5,756 |  |  |  | 10,058 |
LONG-TERM ASSETS |  |  |  |  |  |  |  |
Property, plant and equipment, net |  |  | 283 |  |  |  | 365 |
Operating lease right of use asset, net |  |  | 1,337 |  |  |  | 1,664 |
Intangible assets definite-lived, net |  |  | 302 |  |  |  | 232 |
Notes receivable, net of current portion |  |  | 96 |  |  |  | 201 |
Deferred tax asset, net |  |  | 5,500 |  |  |  | 5,772 |
Deferred contract charges, net of current portion |  |  | 216 |  |  |  | 224 |
Total assets |  | $ | 13,490 |  |  | $ | 18,516 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES |  |  |  |  |  |  |  |
Accounts payable - trade |  | $ | 465 |  |  | $ | 669 |
Accrued expenses |  |  | 747 |  |  |  | 1,082 |
Other current liabilities |  |  | 1 |  |  |  | 81 |
Operating lease liability, current |  |  | 481 |  |  |  | 490 |
Short term loan |  |  | — |  |  |  | 30 |
Deferred revenues, current |  |  | 342 |  |  |  | 538 |
Total current liabilities |  |  | 2,036 |  |  |  | 2,890 |
LONG-TERM LIABILITIES |  |  |  |  |  |  |  |
Operating lease liability, net of current portion |  |  | 1,066 |  |  |  | 1,421 |
Deferred revenues, net of current portion |  |  | 718 |  |  |  | 793 |
Total liabilities |  |  | 3,820 |  |  |  | 5,104 |
COMMITMENTS AND CONTINGENCIES (SEE NOTE D) |  |  |  |  |  |  |  |
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 |
Additional paid-in capital |  |  | 37,643 |  |  |  | 37,384 |
Retained earnings |  |  | 1,804 |  |  |  | 826 |
Treasury stock at cost |  |  |  |  |  |  |  |
Shares in treasury: 10,935,605 and 7,578,628 respectively |  |  | (30,028 | ) |  |  | (25,049 | )
Total shareholders’ equity |  |  | 9,670 |  |  |  | 13,412 |
Total liabilities and shareholders’ equity |  | $ | 13,490 |  |  | $ | 18,516 |

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4

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

|  | Common Stock |  |  |  |  |  |  |  |  | Treasury Stock |  |  |  |
|  | Shares |  |  | Amount |  |  | Additional Paid-in Capital |  |  | Accumulated Deficit |  |  | Shares |  |  | Amount |  |  | Total |
Balance, June 27, 2021 |  |  | 25,090 |  |  | $ | 251 |  |  | $ | 37,215 |  |  | $ | (7,196 | ) |  |  | (7,085 | ) |  | $ | (24,537 | ) |  | $ | 5,733 |
Stock-based compensation expense |  |  | — |  |  |  | — |  |  |  | 42 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 42 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 285 |  |  |  | — |  |  |  | — |  |  |  | 285 |
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 |

|  | 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 |

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5

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

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

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
6

Index
RAVE RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), 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.
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, 2023 and March 27, 2022 each contained 13 weeks and 39 weeks, respectively.
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 can range from five to 20 years. Fees received for renewal periods are amortized over the life of the renewal period.
7

Index
Area development exclusivity fees and foreign master license fees are typically billed upon execution of the area development and foreign master license agreements. Area development exclusivity fees are included in deferred revenue in the accompanying Condensed Consolidated Balance Sheets and allocated on a pro rata basis to all stores opened under that specific development agreement. Area development exclusivity fees that include rights to sub-franchise are amortized as revenue over the term of the contract.
Advertising fund contributions for 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.
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 |
|  | March 26, 2023 |  |  | March 27, 2022 |
Franchise royalties |  | $ | 1,295 |  |  | $ | 1,137 |
Supplier and distributor incentive revenues |  |  | 1,045 |  |  |  | 1,056 |
Franchise license fees |  |  | 39 |  |  |  | 36 |
Area development exclusivity fees and foreign master license fees |  |  | 5 |  |  |  | 5 |
Advertising funds contributions |  |  | 528 |  |  |  | 339 |
Rental income |  |  | 47 |  |  |  | 47 |
Other |  |  | 11 |  |  |  | — |
|  | $ | 2,970 |  |  | $ | 2,620 |

|  | 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

Index
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 ten 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, 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 use asset and lease liability will be recognized.
9

Index
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, leases that, at commencement, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise). Accordingly, we recognize lease payments related to short-term leases in our income statements on a straight-line basis over the lease term. To the extent that there are variable lease payments, we recognize those payments in our Condensed Consolidated Statements of Income the period in which the obligation for those payments is incurred.
The components of total lease expense for the nine months ended March 26, 2023, the majority of which is included in general and administrative expense in the accompanying Condensed Consolidated Statements of Income, are as follows (in 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 |

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 rate |  |  | 4.0 | %

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

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

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

Index
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 E - Stock-Based Compensation
Stock Options:
For the three and nine months ended March 26, 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, 2022, the Company recognized stock-based compensation expense related to stock options of zero and zero, respectively. As of March 26, 2023, there was $4 thousand 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 |
|  | March 26, 2023 |  |  | March 27, 2022 |
|  | Shares |  |  | Shares |
Outstanding at beginning of year |  |  | 111,750 |  |  |  | 166,750 |
Granted |  |  | 40,000 |  |  |  | — |
Exercised |  |  | — |  |  |  | — |
Forfeited/Canceled/Expired |  |  | — |  |  |  | — |
Outstanding at end of period |  |  | 151,750 |  |  |  | 166,750 |
Exercisable at end of period |  |  | 111,750 |  |  |  | 166,750 |

Restricted Stock Units:
For the three and nine months ended March 26, 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, 2022, the Company had stock-based compensation expense of $42 thousand and $127 thousand, respectively, related to RSUs. As of March 26, 2023, there was $330 thousand unamortized stock-based compensation expense related to RSUs.
A summary of the status of restricted stock units as of March 26, 2023, and changes during the nine months then ended is presented below:

Unvested at June 26, 2022 |  |  | 885,688 |
Granted |  |  | — |
Issued |  |  | — |
Forfeited |  |  | — |
Unvested at March 26, 2023 |  |  | 885,688 |

11

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | March 26, 2023 |  |  | March 27, 2022 |  |  | March 26, 2023 |  |  | March 27, 2022 |
Net income available to common stockholders |  | $ | 323 |  |  | $ | 493 |  |  | $ | 978 |  |  | $ | 1,235 |
BASIC: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares |  |  | 14,154 |  |  |  | 18,005 |  |  |  | 15,712 |  |  |  | 18,005 |
Net income per common share |  | $ | 0.02 |  |  | $ | 0.03 |  |  | $ | 0.06 |  |  | $ | 0.07 |
DILUTED: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares |  |  | 14,154 |  |  |  | 18,005 |  |  |  | 15,712 |  |  |  | 18,005 |
Convertible notes |  |  | — |  |  |  | 447 |  |  |  | — |  |  |  | 681 |
Dilutive stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Weighted average common shares outstanding |  |  | 14,154 |  |  |  | 18,452 |  |  |  | 15,712 |  |  |  | 18,686 |
Net income per common share |  | $ | 0.02 |  |  | $ | 0.03 |  |  | $ | 0.06 |  |  | $ | 0.07 |

For the three and nine months ended March 26, 2023, 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 to $13.11 were excluded from the computation of diluted EPS because they had an intrinsic value of zero.
Note G - Income Taxes
For the three and nine months ended March 26, 2023, the Company recorded an income tax expense of $115 thousand and $347 thousand, respectively. For the three and nine months ended March 27, 2022, the Company recorded an income tax expense of $3 thousand and $10 thousand, respectively. For the three months ended March 26, 2023, the federal and state tax expense were $91 thousand and $24 thousand, respectively. For the nine months ended March 26, 2023, the federal and state tax expense were $272 thousand and $75 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 H - Segment Reporting
The Company has three 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, (2) Pie Five Franchising and (3) Company-Owned Restaurants. These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of 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, incentive payments from third party suppliers and distributors, advertising funds, and supplier convention funds. Assets for these segments include equipment, furniture and fixtures.
The Company-Owned 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, 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.
12

Index
Summarized in the following tables are net sales and operating revenues, depreciation and amortization expense, 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, 2023 and March 27, 2022 (in thousands):

|  | Three Months Ended |  |  | Nine Months Ended |
|  | March 26, 2023 |  |  | March 27, 2022 |  |  | March 26, 2023 |  |  | March 27, 2022 |
Net sales and operating revenues: |  |  |  |  |  |  |  |  |  |  |  |
Pizza Inn Franchising |  | $ | 2,450 |  |  | $ | 2,091 |  |  | $ | 7,270 |  |  | $ | 6,279 |
Pie Five Franchising |  |  | 473 |  |  |  | 482 |  |  |  | 1,431 |  |  |  | 1,450 |
Company-Owned Restaurants |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Corporate administration and other |  |  | 47 |  |  |  | 47 |  |  |  | 140 |  |  |  | 140 |
Consolidated revenues |  | $ | 2,970 |  |  | $ | 2,620 |  |  | $ | 8,841 |  |  | $ | 7,869 |
Depreciation and amortization: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate administration and other |  | $ | 54 |  |  | $ | 46 |  |  | $ | 158 |  |  | $ | 138 |
Depreciation and amortization |  | $ | 54 |  |  | $ | 46 |  |  | $ | 158 |  |  | $ | 138 |
Income before taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pizza Inn Franchising |  | $ | 1,701 |  |  | $ | 1,648 |  |  | $ | 4,907 |  |  | $ | 4,506 |
Pie Five Franchising |  |  | 258 |  |  |  | 220 |  |  |  | 761 |  |  |  | 748 |
Company-Owned Restaurants |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | (3 | )
Combined |  |  | 1,959 |  |  |  | 1,867 |  |  |  | 5,668 |  |  |  | 5,251 |
Corporate administration and other |  |  | (1,521 | ) |  |  | (1,371 | ) |  |  | (4,343 | ) |  |  | (4,006 | )
Income before taxes |  | $ | 438 |  |  | $ | 496 |  |  | $ | 1,325 |  |  | $ | 1,245 |
Geographic information (revenues): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 2,910 |  |  | $ | 2,547 |  |  | $ | 8,638 |  |  | $ | 7,643 |
Foreign countries |  |  | 60 |  |  |  | 73 |  |  |  | 203 |  |  |  | 226 |
Consolidated revenues |  | $ | 2,970 |  |  | $ | 2,620 |  |  | $ | 8,841 |  |  | $ | 7,869 |

13

Index
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, 2022 and may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 26, 2022. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Results of Operations
Overview
Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”) and express (“Express Units”) restaurants under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express, or PIE, kiosks (“PIE Units”) under the trademark “Pizza Inn”. We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third party distributors. At March 26, 2023, franchised and licensed units consisted of the following:
Three Months Ended March 26, 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 |
|  | Ending Units |  |  | Retail Sales |  |  | Ending Units |  |  | Retail Sales |  |  | Ending Units |  |  | Retail Sales |
Domestic Franchised/Licensed |  |  | 122 |  |  | $ | 73,301 |  |  |  | 30 |  |  | $ | 15,098 |  |  |  | 152 |  |  | $ | 88,399 |
International Franchised |  |  | 33 |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | 33 |  |  |  |  |

The domestic units were located in 18 states predominantly situated in the southern half of the United States. The international units were located in seven foreign countries.
Basic net income per share decreased $0.01 per share to $0.02 per share for the three months ended March 26, 2023, compared to the comparable period in the prior fiscal year. The Company had net income of $0.3 million for the three months ended March 26, 2023 compared to net income of $0.5 million in the comparable period in the prior fiscal year, on revenues of $3.0 million for the three months ended March 26, 2023 compared to $2.6 million in the comparable period in the prior fiscal year. The increase in revenue was primarily due to increases in 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.
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 long the pandemic will continue or whether it will recur, what additional restrictions may be enacted, if individuals will be comfortable frequenting our Buffet Units and Pie Five Units, or to what extent off-premises will continue. Any of these changes could materially adversely affect the Company’s future financial performance. However, the ultimate impact of COVID-19 on our future results of operations and liquidity cannot presently be predicted.
Non-GAAP Financial Measures and Other Terms
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.
We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe that Adjusted EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. Management also uses these non-GAAP financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.
The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have these meanings and are calculated as follows:

| ● | “EBITDA” 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.

| ● | “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, 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 |
|  | March 26, 2023 |  |  | March 27, 2022 |  |  | March 26, 2023 |  |  | March 27, 2022 |
Net income |  | $ | 323 |  |  | $ | 493 |  |  | $ | 978 |  |  | $ | 1,235 |
Interest expense |  |  | — |  |  |  | 14 |  |  |  | 1 |  |  |  | 61 |
Income taxes |  |  | 115 |  |  |  | 3 |  |  |  | 347 |  |  |  | 10 |
Depreciation and amortization |  |  | 54 |  |  |  | 46 |  |  |  | 158 |  |  |  | 138 |
EBITDA |  | $ | 492 |  |  | $ | 556 |  |  | $ | 1,484 |  |  | $ | 1,444 |
Stock-based compensation expense |  |  | 86 |  |  |  | 42 |  |  |  | 259 |  |  |  | 127 |
Severance |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 33 |
Impairment of long-lived assets and other lease charges |  |  | — |  |  |  | — |  |  |  | 5 |  |  |  | — |
Franchisee default and closed store revenue |  |  | (10 | ) |  |  | (9 | ) |  |  | (23 | ) |  |  | (21 | )
Closed and non-operating store costs |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | 3 |
Adjusted EBITDA |  | $ | 568 |  |  | $ | 590 |  |  | $ | 1,725 |  |  | $ | 1,586 |

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 |
|  | March 26, 2023 |  |  | March 27, 2022 |  |  | March 26, 2023 |  |  | March 27, 2022 |
Pizza Inn Retail Sales - Total Domestic Units |  | (in thousands, except unit data) |  |  | (in thousands, except unit data) |
Domestic Units |  |  |  |  |  |  |  |  |  |  |  |
Buffet Units - Franchised |  | $ | 24,303 |  |  | $ | 20,676 |  |  | $ | 68,967 |  |  | $ | 58,754 |
Delco/Express Units - Franchised |  |  | 1,356 |  |  |  | 1,494 |  |  |  | 4,180 |  |  |  | 4,660 |
PIE Units - Licensed |  |  | 30 |  |  |  | 58 |  |  |  | 154 |  |  |  | 176 |
Total Domestic Retail Sales |  | $ | 25,689 |  |  | $ | 22,228 |  |  | $ | 73,301 |  |  | $ | 63,590 |
Pizza Inn Comparable Store Retail Sales - Total Domestic |  | $ | 25,321 |  |  | $ | $ 21,906 |  |  | $ | 70,366 |  |  | $ | 62,705 |
Pizza Inn Average Units Open in Period |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic Units |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Buffet Units - Franchised |  |  | 73 |  |  |  | 70 |  |  |  | 73 |  |  |  | 71 |
Delco/Express Units - Franchised |  |  | 43 |  |  |  | 49 |  |  |  | 44 |  |  |  | 51 |
PIE Units - Licensed |  |  | 8 |  |  |  | 9 |  |  |  | 9 |  |  |  | 10 |
Total Domestic Units |  |  | 124 |  |  |  | 128 |  |  |  | 126 |  |  |  | 132 |

16

Index
Pizza Inn total domestic retail sales increased by $3.5 million, or 15.6%, for the three months ended March 26, 2023 when compared to the same period of the prior year. The increase in domestic retail sales was primarily the result of the diminished impact of COVID-19 and increased customer engagement. Pizza Inn domestic comparable store retail sales increased by $3.4 million, or 15.6%, 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, 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 |
|  | Beginning Units |  |  | Opened |  |  | Concept Change |  |  | Closed |  |  | Ending Units |
Domestic Units |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Buffet Units - Franchised |  |  | 72 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 73 |
Delco/Express Units - Franchised |  |  | 47 |  |  |  | — |  |  |  | — |  |  |  | 6 |  |  |  | 41 |
PIE Units - Licensed |  |  | 9 |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | 8 |
Total Domestic Units |  |  | 128 |  |  |  | 1 |  |  |  | — |  |  |  | 7 |  |  |  | 122 |
International Units (all types) |  |  | 31 |  |  |  | 2 |  |  |  | — |  |  |  | — |  |  |  | 33 |
Total Units |  |  | 159 |  |  |  | 3 |  |  |  | — |  |  |  | 7 |  |  |  | 155 |

There was a net decrease of three and six units in the total domestic Pizza Inn unit count during the three and nine months ended March 26, 2023, respectively. For the three and nine months ended March 26, 2023, the number of international Pizza Inn units remained stable and increased by two units, respectively. 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 |
|  | March 26, 2023 |  |  | March 27, 2022 |  |  | March 26, 2023 |  |  | March 27, 2022 |
|  | (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 |
Pie Five Comparable Store Retail Sales - Total |  | $ | $ 4,756 |  |  | $ | $ 4,399 |  |  | $ | $ 14,399 |  |  | $ | $ 13,381 |
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 |

17

Index
Pie Five system-wide retail sales increased $0.1 million, or 2.6%, for the three months ended March 26, 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 34 to 31. Comparable store retail sales increased $0.4 million, or 8.1%, during the third quarter of fiscal 2023 compared to the same period of the prior year. For the three months ended March 26, 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 primarily 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, 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 |

There was a net decrease of one unit in the total domestic Pie Five unit count during the three and nine months ended March 26, 2023. We believe that Pie Five units will eventually increase 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, 2023 and March 27, 2022 (in thousands):
Three Months Ended March 26, 2023 and March 27, 2022

|  | 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 |
|  | 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 |  | $ | 2,450 |  |  | $ | 2,091 |  |  | $ | 462 |  |  | $ | 482 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,912 |  |  | $ | 2,573 |
Rental income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 47 |  |  |  | 47 |  |  |  | 47 |  |  |  | 47 |
Interest income and other |  |  | — |  |  |  | — |  |  |  | 11 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11 |  |  |  | — |
Total revenues |  |  | 2,450 |  |  |  | 2,091 |  |  |  | 473 |  |  |  | 482 |  |  |  | — |  |  |  | — |  |  |  | 47 |  |  |  | 47 |  |  |  | 2,970 |  |  |  | 2,620 |
COSTS AND EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
General and administrative expenses |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,486 |  |  |  | 1,357 |  |  |  | 1,486 |  |  |  | 1,357 |
Franchise expenses |  |  | 749 |  |  |  | 443 |  |  |  | 215 |  |  |  | 262 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 964 |  |  |  | 705 |
Bad debt expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 28 |  |  |  | 1 |  |  |  | 28 |  |  |  | 1 |
Interest expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 14 |  |  |  | — |  |  |  | 14 |
Depreciation and amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 54 |  |  |  | 46 |  |  |  | 54 |  |  |  | 46 |
Total costs and expenses |  |  | 749 |  |  |  | 443 |  |  |  | 215 |  |  |  | 262 |  |  |  | — |  |  |  | 1 |  |  |  | 1,568 |  |  |  | 1,418 |  |  |  | 2,532 |  |  |  | 2,124 |
INCOME/(LOSS) BEFORE TAXES |  | $ | 1,701 |  |  | $ | 1,648 |  |  | $ | 258 |  |  | $ | 220 |  |  | $ | — |  |  | $ | (1 | ) |  | $ | (1,521 | ) |  | $ | (1,371 | ) |  | $ | 438 |  |  | $ | 496 |

18

Index
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 |

19

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, 2023 and for the same period in the prior fiscal year were $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 to $2.5 million for the three month period ended March 26, 2023 from $2.1 million for 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 of the prior fiscal year. The increases were primarily 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 $0.5 million for the three month period ended March 26, 2023 as compared to the same period of 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.
General and Administrative Expenses
Total general and administrative expenses increased $0.1 million to $1.5 million for the three month period ended March 26, 2023 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 increases in total general and administrative expenses during both the three and nine month periods were primarily the result of increased 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 $1.0 million for the three month period ended March 26, 2023 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 increase was primarily due to an increase in payroll and related, advertising, and travel costs.
Impairment of Long-lived Assets and Other Lease Charges
Impairment of long-lived assets and other lease charges was zero for the three month period ended March 26, 2023 compared to zero for the same 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 increase was primarily due to impaired beverage equipment.
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, 2023, bad debt expense was $28 thousand compared to bad debt expense of $1 thousand for the same period in the prior fiscal year. Bad debt expense for the nine month period ended March 26, 2023, increased $28 thousand to $37 thousand compared to the comparable period in the prior fiscal year.
Interest Expense
Interest expense decreased $14 thousand to zero for the three month period ended March 26, 2023 compared to 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.
20

Index
Amortization and Depreciation Expense
Amortization and depreciation expense increased slightly for the three and nine months ended March 26, 2023, compared to the same periods of the prior year. In both cases, the increase was primarily the result of higher amortization of intangible assets.
Provision for Income Taxes
For the three and nine months ended March 26, 2023, the Company recorded an income tax expense of $115 thousand and $347 thousand, respectively. For the three and nine months ended March 27, 2022, the Company recorded an income tax expense of $3 thousand and $10 thousand, respectively. The increase for both the three and nine months ended as of March 26, 2023 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.
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 nine month period ended March 26, 2023, the Company's primary source of liquidity was proceeds from operating activities.
Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, share based compensation, and changes in working capital. Cash provided by operating activities was $1.2 million for the nine month period ended March 26, 2023 compared to cash provided by operating activities of $0.5 million for the nine month period ended March 27, 2022. The primary driver of increased operating cash flow during the nine month period ended March 26, 2023 was increased collections of accounts receivable related to the employee retention credit.
Cash flows from investing activities reflect net proceeds from the sale of assets, capital expenditures for the purchase of Company assets and intangibles, and payments received on notes receivable. Cash used in investing activities during the nine month period ended March 26, 2023 was $0.1 million compared to cash provided by investing activities of $0.2 million for the nine months ended March 27, 2022.
Cash flows used in financing activities generally reflect changes in the Company's stock and debt activity during the period. Net cash used in financing activities was $5.0 million for the nine month period ended March 26, 2023 compared to net cash used in financing activities of $1.8 million for the nine month period ended March 27, 2022. Net cash used by financing activities for the nine months ended March 26, 2023 was primarily attributable to repurchases of the Company's 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.
21

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 debts 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 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.
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 a 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, 2023 and March 27, 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.
22

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.
23

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 other claims and legal actions in the ordinary course of its business. The Company believes that all such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company’s annual results of operations, cash flows or financial condition if decided in a manner that is unfavorable to the Company.
Item 1A. Risk Factors
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 23, 2007, the Company’s board of directors approved a stock purchase plan (the “2007 Stock Purchase Plan”) authorizing the purchase on our behalf of up to 1,016,000 shares of our common stock in the open market or in privately negotiated transactions. On June 2, 2008, the Company’s board of directors amended the 2007 Stock Purchase Plan to increase the number of shares of common stock the Company may repurchase by 1,000,000 shares to a total of 2,016,000 shares. On April 22, 2009, the board of directors of the Company again amended the 2007 Stock Purchase Plan by increasing the aggregate number of shares of common stock the Company may repurchase under the plan 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 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 six months ended March 26, 2023, the Company repurchased 3,356,977 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, 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'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.
24

Index
Item 6. 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).
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
32.1 | Section 1350 Certification of Principal Executive Officer.
32.2 | Section 1350 Certification of Principal Financial Officer.
101 | Interactive data files pursuant to Rule 405 of Regulation S-T.

25

Index
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, 2023 |  |  |

26