RAVE Restaurant Group, Inc.
2015 Annual Report
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X]
[ ]
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 28, 2015.
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
(State or jurisdiction of
incorporation or organization)
3551 Plano Parkway
The Colony, Texas
(Address of principal executive offices)
45-3189287
(I.R.S. Employer
Identification No.)
75056
(Zip Code)
Registrant’s telephone number, including area code: (469) 384-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common stock, par value $.01 each
Name of each exchange on which registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes No
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 and posted on its corporate
Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes__ No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
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contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ___ No
As of December 28, 2014, the last business day of the registrant’s most recently completed second fiscal
quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates was
approximately $44.7 million computed by reference to the price at which the common equity was last sold on the
NASDAQ Capital Market.
As of September 24, 2015, there were 10,313,635 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement, to be filed pursuant to Section 14(a) of the Securities
Exchange Act in connection with the registrant’s annual meeting of shareholders scheduled for November 17, 2015,
have been incorporated by reference in Part III of this report.
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Forward-Looking Statements
This Form 10-K contains certain forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, which are intended to be covered by the safe harbors created thereby. Forward-
looking statements include statements which are predictive in nature, which depend upon or refer to future events or
conditions, or which include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or similar
expressions. These statements include the plans and objectives of management for future operations, including
plans and objectives relating to future growth of our business activities and availability of funds. Statements that
address business and growth strategies, performance goals, projected financial condition and operating results, our
understanding of our competition, industry and market trends, and any other statements or assumptions that are not
historical facts are forward-looking statements.
The forward-looking statements included in this Form 10-K are based on current expectations that
involve numerous risks and uncertainties. Assumptions relating to these forward-looking statements involve
judgments with respect to, among other things, future economic, competitive and market conditions,
regulatory framework and future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that the assumptions underlying
these forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion
of such information should not be regarded as a representation that our objectives and plans will be achieved.
PART I
ITEM 1. BUSINESS.
General
Rave Restaurant Group, Inc. and its subsidiaries (collectively referred to as the “Company” or in the first
person notations of “we”, “us” and “our”) operate and franchise pizza buffet, delivery/carry-out and express
restaurants domestically and internationally under the trademark “Pizza Inn” and operate and franchise domestic fast
casual restaurants under the trademarks “Pie Five Pizza Company” or “Pie Five”. We provide or facilitate the
procurement and distribution of food, equipment and supplies to our domestic and international system of
restaurants through our Norco Restaurant Services Company (“Norco”) division and through agreements with third
party distributors.
As of June 28, 2015, we owned and operated 26 restaurants comprised of 24 Pie Five restaurants (“Pie Five
Units”) and two Pizza Inn buffet restaurants (“Buffet Units”). As of that date, we also had 30 franchised Pie Five
Units and 248 franchised Pizza Inn restaurants. The 177 domestic franchised Pizza Inn restaurants were comprised
of 99 Buffet Units, 21 delivery/carry-out restaurants (“Delco Units”) and 57 express restaurants (“Express Units”).
The 71 international franchised Pizza Inn restaurants were comprised of 18 Buffet Units, 45 Delco Units and eight
Express Units. Domestic restaurants were located predominantly in the southern half of the United States, with
Texas, North Carolina, Arkansas and Tennessee accounting for approximately 29%, 12%, 11% and 8%,
respectively, of the total number of domestic restaurants.
Our History
The Company has offered consumers affordable, high quality pizza since 1958, when the first Pizza Inn
restaurant opened in Dallas, Texas. We awarded our first franchise in 1963 and opened our first buffet restaurant in
1969. We began franchising the Pizza Inn brand internationally in the late 1970s. In 1993, our stock began trading
on the NASDAQ Stock Market, and presently trades on the NASDAQ Capital Market under the ticker symbol
“RAVE.” In June 2011, we opened the first Pie Five restaurant in Ft. Worth, Texas. In November 2012, we signed
our first franchise development agreement for Pie Five.
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Our Concepts
We operate and franchise restaurant concepts under two distinct brands: Pie Five and Pizza Inn.
Pie Five
Pie Five is a fast-casual pizza concept that creates individualized pizzas which are baked in 140 seconds in
our specially designed oven. Pizzas are created at the direction of our customers who choose from a variety of
freshly prepared and displayed toppings, cheeses, sauces and doughs and complete their purchase process in less
than five minutes. Customers can also get freshly prepared entrée and side salads, also made to order from our
recipes or at the customer's direction. They can also choose from several baked daily desserts like brownies, cookie
pies, and cakes. A variety of soft beverages are available, as well as beer and wine in some locations. Pie Five
restaurants offer items at prices from $5.49 to $9.99, and the average ticket price per meal, including a drink, was
approximately $8.98 per person for fiscal year 2015. The average per person ticket is slightly higher in restaurants
offering beer and wine.
Pie Five restaurants typically occupy leased, in-line or end-cap space of between 1,800 and 2,400 square
feet in retail strip or multi-unit retail space. The restaurants typically are located in high traffic, high visibility urban
or suburban sites in mid- to large-size metropolitan areas. With seating for 65 to 85 customers in most units, and
patio seating where available, Pie Five restaurants primarily serve lunch and dinner to families, adults and kids of all
ages. Sales are predominantly on-premise though carry out is offered as well. Future sales growth initiatives may
include expanded text ordering and catering services. Due to the relatively compact footprint of the restaurants, and
other operating advantages, we also believe Pie Five is well suited for non-traditional locations such as airports.
Pizza Inn
We operate Buffet Units, Delco Units and Express Units under the Pizza Inn brand. Buffet Units and
Delco Units feature crusts that are hand-made from dough made fresh in the restaurant each day. Our pizzas are
made with a proprietary all-in-one flour mixture, real mozzarella cheese and a proprietary mix of classic pizza
spices. In international markets, the menu mix of toppings and side items is occasionally adapted to local tastes.
Buffet Units offer dine-in, carryout and catering service and, in many cases, also offer delivery service.
Buffet Units offer a variety of pizza crusts with standard toppings and special combinations of toppings in addition
to pasta, salad, sandwiches, appetizers, desserts and beverages, including beer and wine in some locations, in an
informal, family-oriented atmosphere. We occasionally offer other items on a limited promotional basis. Buffet
Units are generally located in free standing buildings or strip center locations in retail developments in close
proximity to offices, shopping centers and residential areas. The current standard Buffet Units are between 2,100
and 4,500 square feet in size and seat 120 to 185 customers. The interior decor is designed to promote a casual,
lively, contemporary, family-style atmosphere. Some Buffet Units feature game rooms that offer a range of
electronic game entertainment for the entire family. The buffet is typically offered at prices from $3.49 to $7.49,
and the average ticket price, including a drink, was approximately $9.52 per person for fiscal year 2015. The
average per person ticket is slightly higher in restaurants offering beer and wine.
Delco Units offer delivery and carryout service only and are typically located in shopping centers or other
in-line retail developments. Delco Units typically offer a variety of crusts and some combination of side items.
Delco Units occupy approximately 1,200 square feet, are primarily production facilities and, in most instances, do
not offer seating. The decor of the Delco Unit is designed to be bright and highly visible and feature neon lighted
displays and awnings. We have attempted to locate Delco Units strategically to facilitate timely delivery service and
to provide easy access for carryout service.
Express Units serve our customers through a variety of non-traditional points of sale. Express Units are
typically located in a convenience store, food court, college campus, airport terminal, travel plaza, athletic facility or
other commercial facility. They have limited or no seating and solely offer quick carryout service of a limited menu
of pizza and other foods and beverages. An Express Unit typically occupies approximately 200 to 400 square feet
and is commonly operated by the operator or food service licensee of the commercial host facility. We have
developed a high-quality pre-prepared crust that is topped and cooked on-site, allowing this concept to offer a lower
initial investment and reduced labor and operating costs while maintaining product quality and consistency. Like
Delco Units, Express Units are primarily production-oriented facilities and, therefore, do not require all of the
equipment, labor or square footage of the Buffet Unit.
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Site Selection
We consider the restaurant site selection process critical to a restaurant’s long-term success and devote
significant resources to the investigation and evaluation of potential sites. The site selection process includes a
review of trade area demographics through the use of a third party customer and site selection tool, as well as a
proprietary evaluation process. We may also rely on a franchisee’s knowledge of the trade area and market
characteristics when selecting a location for a franchised restaurant. A member of our development team visits each
potential domestic restaurant location.
Development and Operations
New Unit Development
We intend to expand the Pizza Inn system domestically and internationally in markets with significant
long-term growth potential and where we believe we can use our competitive strengths to establish brand
recognition and gain local market share. While we plan to expand our Pizza Inn branded domestic restaurant base
primarily through opening new franchised restaurants with new and existing franchisees, we will continue to
evaluate our mix of Company-owned and franchised restaurants. We will evaluate the development of new Pizza
Inn Buffet and Delco Units in international markets in fiscal 2016, particularly in the Middle East.
In appropriate circumstances, we grant area developer rights for Pizza Inn restaurants in new and existing
domestic markets. A Pizza Inn area developer typically pays a negotiated fee to purchase the right to operate or
develop restaurants within a defined territory and, typically, agrees to a multi-restaurant development schedule. The
area developer assists us in local franchise service and quality control in exchange for half of the franchise fees and
royalties from all restaurants within the territory during the term of the agreement.
In fiscal 2016, we intend to continue developing franchised Pie Five Units. As of August 25, 2015, we had
32 franchised units open and had executed multi-year development agreements with 21 franchisees for up to an
additional 375 Pie Five Units to be located in the U.S., including Alabama, Arizona, Arkansas, Colorado, Delaware,
Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska,
New Jersey, New Mexico, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia, Wisconsin and
Washington D.C. The number of Pie Five Units subject to a development agreement is scaled relative to the
estimated development potential of the specified geographic area and requires the franchisee to achieve specified
unit development milestones over a period of time, typically five years, to maintain their development rights in the
area. The rate at which we will be able to continue to expand the Pie Five concept through franchise development is
determined in part by our success at selecting qualified franchisees, by our ability to identify satisfactory sites in
appropriate markets and by our ability to continue training and monitoring our franchisees. We intend to continue to
focus on franchise development opportunities with experienced, well-capitalized, multi-restaurant operators.
In fiscal 2016, we also intend to continue to develop Company-owned Pie Five Units in selected
metropolitan areas throughout the United States. Our ability to open new Company-owned Pie Five Units is largely
dependent on our ability to identify and secure suitable locations, to manage and fund the development of such
locations and to train and staff the restaurants.
Domestic Franchise Operations
Franchise and development agreements. We discontinued offering new Delco Franchises during fiscal
2014. Our current standard forms of franchise agreements provide for the following basic terms:
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Since the Pizza Inn concept was first franchised in 1963, industry franchising concepts and development
strategies have evolved, and our present franchise relationships are evidenced by a variety of contractual forms.
Common to those forms are provisions that: (i) require the franchisee to follow the Pizza Inn system of restaurant
operation and management, (ii) require the franchisee to pay a franchise fee and continuing royalties, and (iii) except
for Express Units, prohibit the development of one restaurant within a specified distance from another.
We launched the franchise program for Pie Five in fiscal 2013. Based on the Pie Five development
agreements currently in effect, we anticipate allocating significant internal resources to the growth of our Pie Five
franchise and development operation in fiscal 2016. Our Pie Five franchise agreement requires that the franchisees:
(i) follow the Pie Five system of restaurant operation and management, (ii) pay a franchise fee and continuing
royalties, (iii) contribute a specified percentage of sales to a marketing fund managed by the Company, and (iv) only
open restaurants that comply with site and design standards determined by the Company.
Training. We offer numerous training programs for the benefit of franchisees and their restaurant crew
managers. The training programs, taught by experienced Company employees, focus on food preparation, service,
cost control, sanitation, safety, local store marketing, personnel management and other aspects of restaurant
operation. The training programs include group classes, supervised work in Company-owned restaurants and
special field seminars. Initial and certain supplemental training programs are offered free of charge to franchisees,
who pay their own travel and lodging expenses. New franchisees also receive on-site training from Company
employees to assist with their first two restaurant openings under their development agreements. Restaurant
managers train their staff through on-the-job training, utilizing video and printed materials produced by us.
Standards. We require franchisee adherence to a variety of standards designed to ensure proper operations
and to protect and enhance the Pie Five and Pizza Inn brands. All franchisees are required to operate their
restaurants in compliance with these written policies, standards and specifications, which include matters such as
menu items, ingredients, materials, supplies, services, furnishings, decor and signs. Our efforts to maintain
consistent operations may result, from time to time, in the closing of certain restaurants that have not achieved and
maintained a consistent standard of quality or operations. We also maintain adherence to our standards through
ongoing support and education of our franchisees by our franchise business consultants, who are deployed locally in
markets where our franchisees are located.
Company-Owned Restaurant Operations
As of June 28, 2015, we operated two Buffet Units and 24 Pie Five Units, primarily in the Dallas/Fort
Worth, Houston and Chicago metropolitan areas. We do not currently intend to operate any Delco Units or Express
Units. Our ability to open Company-owned restaurants is affected by a number of factors, including the terms of
available financing and our ability to locate suitable sites, negotiate acceptable lease or purchase terms, secure
appropriate local governmental permits and approvals, supervise construction and recruit and train management
personnel. In addition to generating revenues and earnings, we use domestic Company-owned restaurants as test
sites for new products and promotions as well as restaurant operational improvements and as a forum for training
new managers and franchisees.
Developing Company-owned Pie Five Units in multiple metropolitan areas is a key component of our
strategic plan. In addition to providing the Company with an attractive economic return, we believe that developing
a domestic network of Company-owned Pie Five Units is an important aspect of our strategy for growing the Pie
Five system. Growth in both the franchised and Company-owned Pie Five Units in operation improves the system’s
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Buffet UnitExpress UnitPie Five UnitDevelopment fee per unit- - 5,000 Franchise fee per unit25,000 5,000 20,000 Initial franchise term20 years5 years10 yearsRenewal period10 years5 years5 yearsRoyalty rate % of sales4%5%6%National Ad fund % of sales1%2%2%Required total ad spending % of sales5%2%5%Pizza Inn
overall economies of scale for advertising, marketing, information systems, distribution and procurement of food
products, and other costs. In fiscal 2016, we plan to allocate additional resources to developing and operating
Company-owned Pie Five Units.
International Franchise Operations
We also offer master license rights to develop Pizza Inn restaurants in certain foreign countries, with
negotiated fees, development schedules and ongoing royalties. A master licensee for a foreign country pays a
negotiated fee to purchase the right to develop and operate Pizza Inn restaurants within a defined territory, typically
for a term of 20 years, plus a ten-year renewal option. The master licensee agrees to a multi-restaurant development
schedule and we train the master licensee to monitor and assist franchisees in their territory with local service and
quality control, with support from us. In return, the master licensee typically retains half the franchise fees and half
the royalties on all restaurants within the territory during the term of the agreement. Master licensees may open
restaurants that they own and operate, or they may open sub-franchised restaurants owned and operated by third
parties through agreements with the master licensee, but subject to our approval.
Our first franchised restaurant outside of the United States opened in the late 1970s. As of June 28, 2015,
there were 71 Pizza Inn restaurants operating internationally. With the exception of two restaurants in Honduras and
one in Bangladesh, all of the restaurants operated or sub-licensed by our international master licensees are in the
United Arab Emirates, Saudi Arabia and adjoining countries. Our ability to continue to develop select international
markets is affected by a number of factors, including our ability to locate experienced, well-capitalized developers
who can commit to an aggressive multi-restaurant development schedule and achieve maximum initial market
penetration with minimal supervision by us. In the future, we may also pursue international opportunities for the
development of Pie Five franchisees.
Food and Supply Distribution
Our Norco division provides product sourcing, purchasing, quality assurance, research and development,
franchisee order and billing services, and logistics support functions for both the Pizza Inn and Pie Five restaurant
systems. We outsource our warehousing and distribution services to reputable and experienced restaurant
distribution companies, including Performance Food Group, Inc. and its affiliates. The distributors make deliveries
to all domestic restaurants from several distribution centers, with delivery territories and responsibilities for each
determined according to geographical region. We believe this division of responsibilities for our purchasing,
franchisee support and distribution systems has resulted in lower operating costs and logistical efficiencies. Norco
also arranges for the distribution of certain products and equipment to some international franchisees.
Effective in the third quarter of fiscal 2015, we changed our distribution arrangements to shift the
responsibility for maintaining system-wide inventory from Norco to third party distributors. As a result, as of June
28, 2015, inventory consisted primarily of food, paper products and supplies stored in and used by Company
restaurants.
Norco is able to leverage the advantages of direct vendor negotiations and volume purchasing of food,
equipment and supplies for the franchisees’ benefit in the form of a concentrated, one-truck delivery system,
competitive pricing and product consistency. Franchisees are able to purchase all products and ingredients from
Norco and have them delivered by experienced and efficient distributors. In order to assure product quality and
consistency, our franchisees are required to purchase from Norco certain food products that are proprietary to the
Pizza Inn and Pie Five systems, including cheese, pizza sauce, flour mixture, certain meats and spice blend. In
addition, franchisees purchase other non-proprietary food products and supplies from Norco. Alternatively,
franchisees may also purchase non-proprietary products and supplies from other suppliers who meet our
requirements for quality and reliability.
Non-proprietary food and ingredients, equipment and other supplies sold by Norco are generally available
from several qualified sources. With the exception of several proprietary food products, such as cheese and dough
flour, we are not dependent upon any one supplier or a limited group of suppliers. We contract with established
food processors for the production of our proprietary products according to our specifications.
We have not experienced any significant shortages of supplies or any delays in receiving our food or
beverage inventories, restaurant supplies or products, and do not anticipate any difficulty in obtaining inventories or
supplies in the foreseeable future. Prices charged to us by our suppliers are subject to fluctuation, and we typically
pass increased costs or savings on to our franchisees through changes in product pricing. We do not engage in
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commodity hedging but enter into pricing arrangements for up to a year in advance for certain high volume
products.
Marketing and Advertising
By communicating a common brand message at the regional, local market and restaurant levels, we believe
we can create and reinforce a strong, consistent marketing message to consumers and increase our market share. We
offer or facilitate a number of ways for the brand image and message to be promoted at the local and regional levels.
The Pizza Inn Advertising Plan Cooperative (“PIAP Cooperative”) is a Texas cooperative association that
is responsible for creating and producing various marketing programs and materials, which may include print and
digital advertisements, direct mail materials, social media and e-mail marketing, television and radio commercials,
in-store promotional materials, and related marketing and public relations services. Each operator of a domestic
Buffet Unit or Delco Unit is entitled to membership in PIAP Cooperative. Nearly all of our existing Pizza Inn
franchise agreements for Buffet Units and Delco Units require the franchisees to become members of PIAP
Cooperative. Members contribute 1% of their sales to PIAP Cooperative. PIAP Cooperative is managed by a board
of trustees comprised of franchisee representatives who are elected by the members each year. We do not have any
ownership interest in PIAP Cooperative. We provide certain administrative, marketing and other services to PIAP
Cooperative and are paid by PIAP Cooperative for such services. As of June 28, 2015, the Company-owned Buffet
Units and substantially all of our domestic franchisees were members of PIAP Cooperative. Operators of Express
Units do not participate in PIAP Cooperative. However, they contribute up to 1% of their sales directly to us to help
fund purchases of Express Unit marketing materials and similar expenditures. International franchisees do not
participate in PIAP Cooperative.
In the past year we have allocated additional resources to the development and execution of marketing
programs for the Pie Five restaurant system to benefit Pie Five franchisees and Company-owned restaurants in
different metropolitan areas. Pie Five franchisees contribute a specified percentage of their sales to the Company to
fund the creation and production of various marketing and advertising programs and materials, which may include
print and digital advertisements, direct mail materials, customer satisfaction systems, social media and e-mail
marketing, television and radio commercials, in-store promotional materials, and related marketing and public
relations services. We anticipate continuing to expand Pie Five marketing activities commensurate with the growth
of the Pie Five system.
Pizza Inn and Pie Five franchisees are required to conduct independent marketing efforts in addition to
their participation in the national marketing programs for each brand. We provide Company-owned and franchised
restaurants with access to an assortment of local store marketing materials, including pre-approved print, radio, and
digital media marketing materials. We also provide local store marketing materials and programs specifically to
support new restaurant openings.
Trademarks and Quality Control
We own various trademarks, including the names “Pizza Inn” and “Pie Five,” that are used in connection
with the restaurants and have been registered with the United States Patent and Trademark Office. The duration of
our trademarks is unlimited, subject to periodic renewal and continued use. In addition, we have obtained trademark
registrations for our marks in several foreign countries and have periodically re-filed and applied for registration in
others. We believe that we hold the necessary rights for protection of the trademarks essential to our business.
Government Regulation
We and our franchisees are subject to various federal, state and local laws affecting the operation of our
restaurants. Each restaurant is subject to licensing and regulation by a number of governmental authorities, which
include health, safety, sanitation, wage and hour, alcoholic beverage, building and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining, or the failure to obtain, required licenses or
approvals could delay or prevent the opening of a new restaurant or require the temporary or permanent closing of
existing restaurants in a particular area.
We are subject to Federal Trade Commission (“FTC”) regulation and to various state laws regulating the
offer and sale of franchises. The FTC requires us to furnish to prospective franchisees a franchise disclosure
document containing prescribed information. Substantive state laws that regulate the franchisor-franchisee
relationship presently exist in a number of states, and bills have been introduced in Congress from time to time that
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would provide for further federal regulation of the franchisor-franchisee relationship in certain respects. Some
foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-
franchisee relationship.
Employees
As of August 25, 2015, we had 557 employees, including 53 in our corporate office and 57 full-time and
447 part-time employees at the Company-owned restaurants. None of our employees are currently covered by
collective bargaining agreements.
Industry and Competition
The restaurant industry is intensely competitive with respect to price, service, location and food quality,
and there are many well-established competitors with substantially greater brand recognition and financial and other
resources than the Company. Competitors include a large number of international, national and regional restaurant
and pizza chains, as well as local restaurants and pizza operators. Some of our competitors may be better
established in the markets where our restaurants are or may be located. Within the pizza segment of the restaurant
industry, we believe that our primary competitors are national pizza chains and several regional chains, including
chains executing a “take and bake” concept. We also compete against the frozen pizza products available at grocery
stores and large superstore retailers. In recent years several competitors have developed fast-casual pizza concepts
that compete with Pie Five in certain metropolitan areas. A change in the pricing or other market strategies of one
or more of our competitors could have an adverse impact on our sales and earnings.
With respect to the sale of franchises, we compete with many franchisors of restaurants and other business
concepts. We believe that the principal competitive factors affecting the sale of franchises are product quality, price,
value, consumer acceptance, franchisor experience and support, and the quality of the relationship maintained
between the franchisor and its franchisees. In general, there is also active competition for management personnel
and attractive commercial real estate sites suitable for our restaurants.
Our Norco division competes with both national and local distributors of food and other restaurant
suppliers. The distribution industry is very competitive. We believe that the principal competitive factors in the
distribution industry are product quality, customer service and price. Norco or its designees are the sole authorized
suppliers of certain proprietary products that all Pizza Inn or Pie Five restaurants are required to use.
ITEM 1A. RISK FACTORS.
Not required for a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
The Company leases its 38,130 square foot corporate office facility pursuant to a sale-leaseback transaction
with average annual lease payments of approximately $11.00 per square foot. This lease began on December 19,
2006 and has a ten year term. In August 2011, we secured a three year term sublease at $14.50 per square foot for
18,360 square feet of the building beginning December 1, 2011.
As of June 28, 2015, the Company also operated two Pizza Inn Buffet Units and 24 Pie Five Units from
leased locations. The operating leases cover premises from 1,765 to 4,634 square feet and have initial terms of from
five to ten years at base rental rates of $18.00 to $42.00 per square foot and contain provisions permitting renewal
for one or more specified terms.
The Company has two leases for Buffet Units in Texas that were closed in fiscal 2008 and 2014. These
leased properties are 4,000 and 4,347 square feet, have annual rental rates of approximately $13.00 and $30.00 per
square foot and expire in 2015 and 2020, respectively. The Company is currently pursuing alternatives for
subleasing or terminating these leases.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to 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 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of August 25, 2015, there were approximately 1,933 stockholders of record of the Company's common
stock.
The Company had no sales of unregistered securities during fiscal 2015 or 2014.
The Company's common stock is listed on the Capital Market of the NASDAQ Stock Market, LLC
(“NASDAQ”) under the symbol “RAVE”. The following table shows the highest and lowest price per share of the
common stock during each quarterly period within the two most recent fiscal years, as reported by NASDAQ. Such
prices reflect inter-dealer quotations, without adjustment for any retail markup, markdown or commission.
The Company did not pay any dividends on its common stock during the fiscal years ended June 28, 2015
or June 29, 2014. Any determination to pay cash dividends in the future will be at the discretion of the Company’s
board of directors and will be dependent upon the Company’s results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant. Currently, there is no intention to pay any
dividends on our common stock.
2007 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. The 2007 Stock Purchase Plan does not have an expiration date.
There were no stock purchases in the fiscal year ended June 28, 2015.
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”). Subsequent
to June 28, 2015, the Company has not repurchased any outstanding shares but may make further purchases under
the 2007 Stock Purchase Plan. 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.
12
HighLowFiscal 2015:Fourth Quarter Ended 6/28/201515.93$ 10.72$ Third Quarter Ended 3/29/201516.20 6.96 Second Quarter Ended 12/28/20148.23 6.12 First Quarter Ended 9/28/20148.63 5.96 Fiscal 2014:Fourth Quarter Ended 6/29/20146.74$ 5.41$ Third Quarter Ended 3/30/20148.29 5.38 Second Quarter Ended 12/29/20139.09 7.15 First Quarter Ended 9/29/20138.21 5.51
Equity Compensation Plan Information
The following table furnishes information with respect to the Company’s equity compensation plans as of
June 28, 2015:
Additional information regarding equity compensation can be found in the notes to the consolidated
financial statements.
ITEM 6. SELECTED FINANCIAL DATA
Not required for a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and
accompanying notes appearing elsewhere in this Annual Report on Form 10-K and may contain certain forward-
looking statements. See “Forward-Looking Statements.”
Overview
The Company operates and franchises pizza buffet, delivery/carry-out and express restaurants domestically
and internationally under the trademark “Pizza Inn” and operates domestic fast casual pizza restaurants under the
trademarks “Pie Five Pizza Company” or “Pie Five”. We provide or facilitate food, equipment and supply
distribution to our domestic and international system of restaurants through our Norco Restaurant Services Company
division and through agreements with third party distributors. At June 28, 2015, Company-owned and franchised
restaurants consisted of the following:
13
Number of securities toWeighted-averageNumber of securitiesbe issued upon exerciseexercise price of remaining available for Planof outstanding options, outstanding options, future issuance underCategorywarrants, and rightswarrants, and rightsequity compensation plansEquity compensationplans approved bysecurity holders871,798 $3.511,200,000 Equity compensationplans not approved bysecurity holders- $ - - Total871,798 $3.511,200,000 (in thousands, except unit data)EndingRetailEndingRetailEndingRetailUnitsSalesUnitsSalesUnitsSalesCompany-Owned2 1,471$ 24 11,398$ 26 12,869$ Domestic Franchised177 91,480 30 13,940 207 105,420 Total Domestic Units179 92,951$ 54 25,338$ 233 118,289$ International Franchised71 - 71 Pizza InnPie FiveAll Concepts
The domestic restaurants were located in 25 states predominately situated in the southern half of the United
States. The international restaurants were located in seven foreign countries.
Basic and diluted loss per common share increased $0.01 to a loss of $0.19 and $0.18, respectively, for
fiscal 2015, compared to $0.18 and $0.17, respectively, in the prior fiscal year. Net loss increased $0.2 million to a
loss of $1.8 million for fiscal 2015 compared to a loss of $1.6 million for the prior fiscal year on revenues of $48.2
million for fiscal 2015 as compared to $42.2 million in fiscal 2014. The increase in net loss from prior year was
primarily due to increased pre-opening expenses and higher general and administrative and franchise costs related to
additional personnel and other resources to support the growth of Pie Five franchising and opening of Company-
owned restaurants.
Adjusted EBITDA for the fiscal year ended June 28, 2015, improved $0.9 million to a positive $0.6 million
compared to a negative $0.3 million for the comparable period of the prior fiscal year. The following table sets forth
a reconciliation of net income to Adjusted EBITDA for the periods shown (in thousands):
Results of operations for fiscal 2015 and 2014 both included 52 weeks.
14
June 28,June 29,20152014Net Loss(1,839)$ (1,567)$ Interest Expense113 142 Income Taxes(670) (760) Income Taxes--Discontinued Operations(86) (58) Depreciation and amortization1,617 1,454 EBITDA(865)$ (789)$ Stock compensation expense128 68 Pre-opening costs721 161 Asset disposals, closure costs and restaurant impairment586 275 Adjusted EBITDA570$ (285)$ Fiscal Year Ended
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.
Pie Five system-wide retail sales increased $14.4 million, or 131.2%, for the fiscal year ended June 28,
2015 when compared to the prior year. System-wide average weekly sales improved by $2,439, or 19.6%, from
$12,468 in fiscal year 2014 to $14,907 for fiscal year 2015. Compared to the fiscal year 2014, average units open in
the period increased from 17 to 32. Comparable store retail sales increased by 11.2% during fiscal 2015 compared
to fiscal 2014.
The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 28, 2015:
We believe that the net addition of 34 Pie Five Units during fiscal 2015 reflects the continuation of an
accelerated pace of growth in the opening of Pie Five Units as franchised stores begin to open pursuant to previously
executed franchise development agreements and the Company continues to develop its own stores in the Dallas-Fort
Worth, Houston, Chicago and other metropolitan areas. The two closed franchised locations were related to the
conversion of a market region from a franchise market to a Company market.
15
June 28,June 29,20152014Pie Five Retail Sales - Total Stores Domestic - Franchised13,940$ 2,857$ Domestic - Company-owned11,398 8,101 Total domestic retail sales25,338$ 10,958$ Pie Five Comparable Store Retail Sales - Total7,892$ 7,100$ Pie Five Average Units Open in Period Domestic - Franchised16 5 Domestic - Company-owned16 12 Total domestic Units32 17 Fiscal Year EndedBeginningEndingUnitsOpenedClosedUnitsDomestic - Franchised7 25 2 30 Domestic - Company-owned13 11 - 24 Total domestic Units20 36 2 54 Fiscal Year Ended June 28, 2015
Average weekly sales for Company-owned Pie Five restaurants increased $906, or 7.1%, to $13,693 for the
fiscal year ended June 28, 2015 compared to $12,787 for the same period of prior year. Company-owned Pie Five
restaurant operating cash flow increased $0.8 million, or 75.0%, during the fiscal year 2015 compared to the same
period of prior year. Loss from continuing operations before taxes for Company-owned Pie Five stores increased
$0.1 million the fiscal year ended June 28, 2015 compared to the same period of the prior year.
For the Pie Five Company-owned restaurants, the increase in sales and restaurant operating cash flow was
due to an increase in store count.
16
Pie Five - Company-Owned Restaurants(in thousands, except store weeks and average data)Fiscal Year EndedSept 28,Dec 28,March 29,June 28,June 28,20142014201520152015Store weeks169 182 212 264 827 Average weekly sales14,199 13,336 13,432 13,826 13,693 Average number of units13 14 16 20 16 Restaurant sales (excluding partial weeks)2,400 2,427 2,848 3,650 11,324 Restaurant sales2,405 2,438 2,855 3,700 11,398 Restaurant operating cash flow413 346 439 571 1,769 Allocated marketing and advertising expenses(120) (122) (143) (185) (570) Depreciation/amortization expense (274) (267) (319) (384) (1,244) Pre-opening costs (35) (137) (195) (354) (721) Operations management and extraordinary expenses(41) (100) (51) (229) (421) Deferred rent adjustment (net) and impairment- - - - - Loss from continuing operations before taxes (57) (280) (269) (581) (1,187) Fiscal Year EndedSept 29,Dec 29,March 30,June 29,June 29,20132013201420142014Store weeks139 156 169 169 633 Average weekly sales11,896 11,802 13,186 14,030 12,787 Average number of units11 12 13 13 12 Restaurant sales (excluding partial weeks)1,654 1,841 2,228 2,371 8,094 Restaurant sales1,659 1,843 2,228 2,371 8,101 Restaurant operating cash flow164 161 316 370 1,011 Allocated marketing and advertising expenses(83) (92) (111) (119) (405) Depreciation/amortization expense (256) (237) (280) (274) (1,047) Pre-opening costs (86) (70) (4) (1) (161) Operations management and extraordinary expenses(41) (59) (59) (50) (209) Deferred rent adjustment (net) and impairment- 3 - (253) (250) Loss from continuing operations before taxes (302) (294) (138) (327) (1,061) Three Months EndedThree Months Ended
Pizza Inn Brand Summary
The following tables summarize certain key indicators for the Pizza Inn franchised and Company-owned
domestic restaurants that management believes are useful in evaluating performance.
Total domestic Pizza Inn retail sales increased $0.7 million, or 0.8% compared to the prior year. The
increase in domestic retail sales was primarily due to a $3.5 million, or 4.1% increase in comparable store sales
compared to the prior fiscal year, partially offset by stores that closed. Loss from continuing operations before taxes
for Pizza Inn Company-owned restaurants was $0.5 million for the fiscal year 2015 and $0.4 million for the fiscal
year 2014. The fiscal year 2015 loss includes a $0.3 million impairment charge for a Company-owned Pizza Inn
restaurant with insufficient projected future cash flows to recover the value of its long-lived assets.
The following chart summarizes Pizza Inn restaurant activity for the fiscal year ended June 28, 2015:
We believe that the net decrease of three domestic Pizza Inn units during fiscal 2015 reflects an overall
improving trend in net domestic store closures. The number of international Pizza Inn units continues to remain
steady.
17
Pizza Inn Retail Sales - Total Domestic StoresJune 28,June 29,Domestic Units20152014 Buffet - Franchised83,539$ 81,960$ Delco/Express - Franchised7,941 8,377 Buffet - Company-owned1,471 1,870 Total domestic retail sales92,951$ 92,207$ Pizza Inn Comparable Store Retail Sales - Total Domestic87,547$ 84,065$ Pizza Inn Average Units Open in PeriodDomestic Units Buffet - Franchised100 105 Delco/Express - Franchised75 73 Buffet - Company-owned2 2 Total domestic units177 180 Fiscal Year EndedBeginningEndingUnitsOpenedClosedUnitsDomestic UnitsBuffet - Franchised103 2 6 99 Delco/Express - Franchised77 6 5 78 Buffet - Company-owned2 - - 2 Total domestic Units182 8 11 179 International Units (all types)71 - - 71 Total Units253 8 11 250 Fiscal Year Ended June 28, 2015
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.
The following key performance indicators presented herein, some of which represent non-GAAP financial
measures, have the meaning and are calculated as follows:
“EBITDA” represents earnings before interest, taxes, depreciation and amortization.
“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock
compensation expense, pre-opening expense, gain/loss on sale of assets, costs related to closed restaurants
and impairment charges.
“Retail sales” represents the restaurant sales reported by our franchisees and Company-owned restaurants,
which may be segmented by brand or domestic/international locations.
“System-wide retail sales” represents combined retail sales for franchisee and Company-owned restaurants
for a specified brand.
“Comparable store retail sales” includes the retail sales for restaurants that have been open for at least 18
months as of the end of the reporting period. The sales results for a restaurant that was closed temporarily
for remodeling or relocation within the same trade area are included in the calculation only for the days that
the restaurant was open in both periods being compared.
“Store weeks” represent the total number of full weeks that specified restaurants were open during the
period.
“Average units open” reflects the number of restaurants open during a reporting period weighted by the
percentage of the weeks in a reporting period that each restaurant was open.
“Average weekly sales” for a specified period is calculated as total retail sales (excluding partial weeks)
divided by store weeks in the period.
“Restaurant operating cash flow” represents the pre-tax income earned by Company-owned restaurants
before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) pre-opening
expenses, (4) operations management and extraordinary expenses and (5) deferred rent adjustment (net)
and impairment.
“Pre-opening expenses” consist primarily of certain costs incurred prior to the opening of a restaurant,
including: (1) marketing and promotional expenses, (2) accrued rent, and (3) manager salaries, employee
payroll and related training costs.
Financial Results
Revenues:
Revenues are derived from (1) sales of food, paper products and supplies from Norco to franchisees, (2)
franchise royalties and franchise fees, and (3) Company-owned restaurant operations. Financial results are
dependent in large part upon the volume, pricing and cost of the products and supplies sold to franchisees. The
volume of products sold by Norco to franchisees is dependent on the level of franchisee chain-wide retail sales,
which are impacted by changes in comparable store sales and restaurant count, and the mix of products sold to
franchisees through Norco rather than through third-party food distributors.
Total revenues for fiscal 2015 and for the same period in the prior fiscal year were $48.2 million and $42.2
million, respectively. Revenue for these periods consisted of the following:
18
Food and Supply Sales
Food and supply sales by Norco include food and paper products and other distribution revenues. For fiscal
2015, food and supply sales increased 6.9% to $30.8 million compared to $28.8 million for the prior fiscal year due
to an increase in sales to franchisees. This increase was driven by a $12.2 million, or 13.1%, increase in domestic
franchisee retail sales attributable to an increase in the average number of stores open and an increase in comparable
store sales in the current year when compared to prior year.
Franchise Revenue
Franchise revenue, which includes income from domestic and international royalties and license fees,
increased to $4.5 million for fiscal 2015 compared to $3.4 million for the prior fiscal year as the result of higher
domestic and international royalties resulting from higher franchisee retail sales and an increase in franchise and
development fees due to increased Pie Five store openings.
Restaurant Sales
Restaurant sales, which consist of revenue generated by Company-owned restaurants, increased 29.1%, or
$2.9 million, to $12.9 million for fiscal 2015 compared to $10.0 million for the prior fiscal year. This increase was
due to 11 new Company-owned Pie Five Units in fiscal 2015, partially offset by the closing of one Company-owned
Pizza Inn buffet restaurant in the fourth quarter of fiscal 2014.
Costs and Expenses:
Cost of Sales
Cost of sales primarily includes food and supply costs, distribution fees, labor and general and
administrative expenses directly related to restaurant sales. These costs increased 13.7%, or $5.0 million, to $41.3
million for fiscal 2015 compared to $36.3 million for the prior fiscal year. The increase in cost of sales was
primarily due to the increased number of Company-owned Pie Five restaurants compared to the prior year.
Franchise Expenses
Franchise expenses include selling, general and administrative expenses directly related to the sale and
continuing service of domestic and international franchises. These expenses increased to $3.2 million from $2.9
million in the prior fiscal year primarily due to higher payroll, travel and marketing costs during fiscal 2015 as a
result of the addition of personnel to develop and grow the Pie Five franchise system.
General and Administrative Expenses
General and administrative expenses increased $0.4 million to $4.8 million for fiscal 2015 compared to
$4.4 million for the prior fiscal year primarily due to operating expenses associated with new Company-owned Pie
Five restaurants and future growth plans.
Pre-Opening Expense
The Company's pre-opening costs are expensed as incurred and generally include payroll and other direct
costs associated with training new managers and employees prior to opening a new restaurant, rent and other unit
operating expenses incurred prior to opening, and promotional costs associated with the opening of Company-owned
restaurants. Pre-opening expenses increased to $0.7 million from $0.2 million in the prior year primarily due to the
accelerating rate of Pie Five store openings.
19
June 28,June 29,20152014Food and supply sales30,787$ 28,810$ Franchise revenue4,543 3,443 Restaurant sales12,869 9,971 Total revenue48,199$ 42,224$
Impairment Expenses
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 an asset compared to its carrying value. If
impairment is recognized, the carrying value of the impaired asset is reduced to its fair value, based on discounted
estimated future cash flows. During fiscal year 2015, the Company tested its long-lived assets for impairment and
recognized pre-tax, non-cash impairment charges of $0.3 million related to the carrying value of one Pizza Inn
restaurant.
Provision for Bad Debt
Bad debt provision related to accounts receivable from franchisees decreased to $0.2 million in fiscal 2015
compared to $0.3 million in the prior year. The Company believes that this provision and related allowance for
doubtful accounts adequately reserves for outstanding receivables due from franchisees whose restaurants closed
and for outstanding receivables due from continuing franchisees. For restaurants that are anticipated to close or are
exhibiting signs of financial distress, credit terms are typically restricted, weekly food orders are required to be paid
prior to delivery and royalty and advertising fees are collected as add-ons to the delivered price of weekly food
orders.
Interest Expense
Interest expense decreased nominally for the fiscal year ended June 28, 2015, compared to the prior year
due to lower average borrowings on the Company’s credit facilities in the current year which was paid in full in the
second quarter of fiscal 2015.
Provision for Income Tax
Income tax benefit for fiscal 2015 decreased $0.1 million to $0.7 million and was calculated on an effective
income tax rate that is consistent with the statutory U.S. federal income tax rate of 34% adjusted for state income tax
effects and permanent difference items. The decrease in tax benefit in fiscal 2015 was due to a decrease in the
effective tax rate to 28.6% in fiscal 2015 from 33.9% in fiscal 2014 due primarily to adjusted state tax calculations.
Management believes that future operations will generate sufficient taxable income, along with the reversal of
temporary differences, to fully realize the net deferred tax assets of $2.6 million.
Discontinued Operations
Discontinued operations include losses from two Pizza Inn locations in Texas. One is a leased building
associated with a Company-owned restaurant closed during fiscal 2008. The other is results of operations for a
Company-owned restaurant that was closed in the fourth quarter of fiscal 2014 due to declining sales.
Sources and Uses of Funds
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operating activities and proceeds from the sale of
common stock.
Cash flows from operating activities are generally the result of net income adjusted for depreciation and
amortization and changes in working capital. Cash provided by operations was $2.0 million in fiscal 2015 compared
to cash used by operations of $0.1 million in fiscal year 2014.
The Company used cash for investing activities of approximately $6.7 million in fiscal 2015 mainly for
new Company-owned Pie Five Units. The Company used cash for investing activities of approximately $2.0 million
in fiscal 2014 mainly for new Company-owned Pie Five stores.
20
Cash flows from financing activities generally reflect changes in the Company's net borrowings, stock
options exercised and proceeds from the sale of stock during the period. During fiscal 2015, the Company had a net
decrease of $0.8 million in bank debt. During fiscal 2014, the Company had a net decrease of $1.8 million in bank
debt. During fiscal 2015, the Company had proceeds from the sale of stock of $8.3 million compared to $5.6
million in the prior fiscal year. During fiscal 2015, the Company had proceeds from the exercise of stock options of
$0.4 million compared to $0.1 million in the prior fiscal year.
On May 20, 2013, the Company entered into an At-the-Market Issuance Sales Agreement with MLV & Co.
LLC (“MLV”) pursuant to which the Company could offer and sell shares of its common stock having an aggregate
offering price of up to $3,000,000 from time to time through MLV, acting as agent (the “2013 ATM Offering”). The
2013 ATM Offering was undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which
was declared effective by the SEC on May 13, 2013. On November 20, 2013, the Company and MLV amended the
At-the-Market Issuance Sales Agreement and the SEC declared effective a new shelf Registration Statement on
Form S-3 to increase the 2013 ATM Offering by $5,000,000. The Company ultimately sold an aggregate of
1,257,609 shares in the 2013 ATM Offering, realizing aggregate net proceeds of $7.8 million.
On October 1, 2014, the Company entered into a new At Market Issuance Sales Agreement with MLV
pursuant to which the Company could initially offer and sell shares of its common stock having an aggregate
offering price of up to $5,000,000 from time to time through MLV, acting as agent (the “2014 ATM Offering”). On
February 13, 2015, the aggregate offering amount of the 2014 ATM Offering was increased to $10,000,000. The
2014 ATM Offering is being undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3
which was declared effective by the SEC on August 8, 2014. Through June 28, 2015, the Company had sold an
aggregate of 767,463 shares in the 2014 ATM Offering, realizing aggregate net proceeds of $7.1 million.
Credit Facilities
On August 28, 2012, the Company entered into a Loan and Security Agreement (the “F&M Loan
Agreement”) with The F&M Bank & Trust Company (“F&M”) providing for a $2.0 million revolving credit facility
(with a $500 thousand letter of credit subfacility), a $2.0 million fully funded term loan facility and a $6.0 million
advancing term loan facility. An origination fee of 0.5% of the total credit facilities was paid at closing. At closing,
F&M funded a $2.0 million term loan payable in 48 equal monthly installments of principal plus accrued interest at
a fixed rate of 4.574% per annum. Amounts repaid under this fully funded term loan could not be reborrowed.
Initial proceeds from the F&M Loan Agreement were used to repay amounts borrowed under a previous credit
facility that subsequently was canceled.
On June 13, 2013 the Company entered into a First Amendment to the F&M Loan Agreement that revised
certain financial covenants to address proceeds from the Company’s at-the-market offerings of common stock. On
September 10, 2013 the Company entered into a Second Amendment to the F&M Loan Agreement that specified the
application of prepayments to the loan amortization schedule and revised certain definitions.
The Company could borrow, repay and reborrow under the revolving credit facility through August 28,
2014, at which time all amounts outstanding under the revolving credit facility would mature. The Company did not
draw borrowings on the revolving credit facility during fiscal 2015 and allowed it to expire. An unused commitment
fee of 0.50% per annum was payable quarterly on the average unused portion of the revolving credit facility.
Through August 28, 2014, F&M had agreed to make up to $6.0 million in additional term loans to the
Company. However, no amounts were outstanding on the advancing term loan facility at the expiration of the
advance period. As of September 26, 2014, the balance on the initial term loan facility was also paid in full. As a
result, the F&M Loan Agreement expired by its terms.
Liquidity
We expect to fund continuing operations and planned capital expenditures for the next fiscal year primarily
from cash on hand and operating cash flow, with additional potential funding from the 2014 ATM Offering and debt
borrowings. Based on budgeted and year-to-date cash flow information, we believe that we have sufficient liquidity
to satisfy our cash requirements for the 2016 fiscal year.
21
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 food and supply sales to franchisees
and franchise royalties. The Company records a provision for doubtful 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.
Prior to January 5, 2015, inventory consisted primarily of food, paper products and supplies primarily
warehoused by the Company’s third-party distributors for distribution system-wide and was stated at lower of cost
or market, with cost determined according to the weighted average cost method. The valuation of such inventory
required us to estimate the amount of obsolete and excess inventory based on estimates of future demand for our
products within specific time horizons, generally nine months or less. The possibility of overestimating demand
subjected us to risk of inventory write-down which could have had a negative impact on the Company’s gross
margin.
Effective in the third quarter of fiscal 2015, we changed our distribution arrangements to shift the
responsibility for maintaining system-wide distribution inventory from Norco to third party distributors. As a result,
as of June 28, 2015, inventory consisted primarily of food, paper products and supplies stored in and used by
Company restaurants and was stated at lower of first-in, first-out (“FIFO”) or market. The valuation of such
restaurant inventory requires us to estimate the amount of obsolete and excess inventory based on estimates of future
retail sales by Company-owned restaurants. Overestimating retail sales by Company-owned restaurants could result
in the write-down of inventory which would have a negative impact on the gross margin of such Company-owned
restaurants.
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 an asset compared to its carrying value. If
impairment is recognized, the carrying value of the impaired asset is reduced to its fair value based on discounted
estimated future cash flows. During fiscal year 2015, the Company tested its long-lived assets for impairment and
recognized pre-tax, non-cash impairment charges of $0.3 million related to the carrying value of one Company-
owned Buffet Unit in Texas. During fiscal year 2014, the Company tested its long-lived assets for impairment and
recognized pre-tax, non-cash impairment charges of $0.3 million related to the carrying value of two Company-
owned Pie Five Units in Texas.
The Company periodically evaluates the realizability of its deferred tax assets based upon the Company’s
analysis of existing tax credits by jurisdiction and expectations of the Company’s ability to utilize these tax assets
through a review of estimated future taxable income and establishment of tax strategies. These estimates could be
materially impacted by changes in future taxable income, the results of tax strategies or changes in tax law.
The Company recognizes food and supply revenue when products are delivered and the customer takes
ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an
arrangement exists and the sales price is fixed or determinable. Franchise revenue consists of income from license
fees, royalties, and area development and foreign master license sales. License fees are recognized as income when
there has been substantial performance of the agreement by both the franchisee and the Company, generally at the
time the restaurant is opened. Royalties are recognized as income when earned.
22
The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a
comprehensive model for how a company should recognize, measure, present, and disclose in its financial
statements uncertain tax positions that it has taken or expects to take on a tax return. ASC 740-10 requires that a
company recognize in its financial statements the impact of tax positions that meet a “more likely than not”
threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from
such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. As of June 28, 2015 and June 29, 2014, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See information set forth on Index to Consolidated Financial Statements and Supplementary Data
appearing on page F-1 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer and
principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, the principal executive officer and principal
financial officer concluded that the Company’s disclosure controls and procedures, as of the end of the period
covered by this report, were effective in assuring that the information required to be disclosed by the Company in
reports filed under the Securities Exchange Act of 1934 is (i) accumulated and communicated to management,
including the principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.
Management Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate “internal control
over financial reporting” (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Under the
supervision and with the participation of management, including our principal executive officer and principal
financial officer, the Company has conducted an evaluation of the effectiveness of its internal control over financial
reporting. The Company’s management based it’s evaluation on criteria set forth in the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based upon that evaluation, management has concluded that our internal control over financial reporting was
effective as of June 28, 2015. 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,
its internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
There is no information required to be disclosed under this Item.
23
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item is incorporated by reference from the Company’s definitive proxy
statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the Company’s definitive proxy
statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this Item is incorporated by reference from the Company’s definitive proxy
statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
The information required by this Item is incorporated by reference from the Company’s definitive proxy
statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is incorporated by reference from the Company’s definitive proxy
statement to be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
(a) 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
3.2
10.1
Amended and Restated Articles of Incorporation of Rave Restaurant Group, Inc. (filed as Exhibit
3.1 to Form 8-K filed January 8, 2015 and incorporated herein by reference).
Amended and Restated Bylaws of Rave Restaurant Group, Inc. (filed as Exhibit 3.2 to Form 8-K
filed January 8, 2015 and incorporated herein by reference).
2005 Non-Employee Directors Stock Award Plan of the Company and form of Stock Option Award
Agreement (filed as Exhibit 10.25 to Form 10-K for the fiscal year ended June 26, 2005 and
incorporated herein by reference).*
10.2
2005 Employee Incentive Stock Option Award Plan of the Company and form of Stock Option
Award Agreement (filed as Exhibit 10.26 to Form 10-K for the fiscal year ended June 26, 2005 and
24
incorporated herein by reference).*
10.3
10.4
10.5
10.6
10.7
10.8
2015 Long Term Incentive Plan of the Company (filed as Exhibit 10.1 to Form 8-K filed November
20, 2014 and incorporated herein by reference).*
Form of Stock Option Grant Agreement under the Company’s 2015 Long Term Incentive Plan
(filed as Exhibit 10.2 to Form 8-K filed November 20, 2014 and incorporated herein by reference).*
Employment letter dated November 8, 2012, between the Company and Randall Gier (filed as
Exhibit 10.1 to Form 8-K filed November 15, 2012, and incorporated herein by reference).*
Employment letter dated April 7, 2014, between the Company and Tim Mullany (filed as Exhibit
10.1 to Form 8-K filed April 30, 2014, and incorporated herein by reference).*
At Market Issuance Sales Agreement between the Company and MLV & Co. LLC dated October 1,
2014 (filed as Exhibit 1.1 to Form 8-K filed October 1, 2014, and incorporated herein by reference).
Advisory Services Agreement between the Company and NCM Services, Inc. dated February 20,
2014 (filed as Exhibit 10.1 to Form 8-K filed February 24, 2014, and incorporated herein by
reference).*
21.1
List of Subsidiaries.
23.1
Consent of Independent Registered Public Accounting Firm.
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.
* Management contract or compensatory plan or arrangement.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 24, 2015
Rave Restaurant Group, Inc.
By: /s/ Randall E. Gier
Randall E. Gier
President and Chief Executive Officer
By: /s/ Timothy E. Mullany
Timothy E. Mullany
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name and Position
/s/ Randall E. Gier
Randall E. Gier
President and Chief Executive Officer
(Principal Executive Officer)
Date
September 24, 2015
/s/Timothy E. Mullany
Tim Mullany
Chief Financial Officer
(Principal Financial and Accounting
Officer)
September 24, 2015
September 24, 2015
/s/Mark E. Schwarz
Mark E. Schwarz
Director and Chairman of the Board
/s/Ramon D. Phillips
Ramon D. Phillips
Director and Vice Chairman of the
Board
/s/ Steven M. Johnson
Steven M. Johnson
Director
/s/Robert B. Page
Robert B. Page
Director
/s/ William C. Hammett, Jr.
William Hammett
Director
/s/ Clinton J. Coleman
Clinton J. Coleman
Director
September 24, 2015
September 24, 2015
September 24, 2015
September 24, 2015
September 24, 2015
26
Exhibit 21.1
SUBSIDIARIES OF RAVE RESTAURANT GROUP, INC.
Name of Subsidiary
Jurisdiction of Organization
Pizza Inn, Inc.*
(d/b/a Pizza Inn)
Pie Five Pizza Company, Inc.*
(d/b/a Pie Five Pizza Company or Pie Five)
Pie Five Restaurants, Inc.*
PIBC Holding, Inc.*
Pizza Inn Beverage Corp.*
Pie Five Beverage Corp.*
Missouri
Texas
Texas
Texas
Texas
Texas
* Does business under its corporate name as well as any referenced assumed name.
27
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Rave Restaurant Group, Inc.
The Colony, Texas
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 033-71700,
333-77617, 333-76296 and 333-177436) and Forms S-3 (Nos. 333-188344, 333-191559 and 333-197507) of Rave
Restaurant Group, Inc. of our report dated September 24, 2014, relating to the consolidated financial statement,
which appears in this Form 10-K.
Montgomery Coscia Greilich LLP
Plano, Texas
September 24, 2015
28
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to section 3.02 of the Sarbanes-Oxley Act of 2002
I, Randall E. Gier, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Rave Restaurant Group, Inc. (“the Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the Registrant’s auditors and the audit committee of the
Registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: September 24, 2015
By: /s/ Randall E. Gier
Randall E. Gier
President and Chief Executive Officer
(Principal Executive Officer)
29
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 3.02 of the Sarbanes-Oxley Act of 2002
I, Timothy E. Mullany, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Rave Restaurant Group, Inc. (“the Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the Registrant’s auditors and the audit committee of the
Registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: September 24, 2015
By: /s/ Timothy E. Mullany
Timothy E. Mullany
Chief Financial Officer
(Principal Financial Officer)
30
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned officer of Rave Restaurant Group, Inc. (the “Company”), does hereby certify, to such
officer’s knowledge, that the accompanying Annual Report on Form 10-K for the fiscal year ended June 28, 2015,
and filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”) fully complies with
the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the
information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: September 24, 2015
By: /s/ Randall E. Gier
President and Chief Executive Officer
(Principal Executive Officer)
31
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned officer of Rave Restaurant Group, Inc. (the “Company”), does hereby certify, to such
officer’s knowledge, that the accompanying Annual Report on Form 10-K for the fiscal year ended June 28, 2015,
and filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”) fully complies with
the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the
information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: September 24, 2015
By: /s/ Timothy E. Mullany
Timothy E. Mullany
Chief Financial Officer
(Principal Financial Officer)
32
RAVE RESTAURANT GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description
Page No.
Report of Independent Registered Public Accounting Firm – Montgomery Coscia Greilich LLP
Consolidated Statements of Operations for the years ended June 28, 2015 and June 29, 2014.
Consolidated Balance Sheets at June 28, 2015 and June 29, 2014.
Consolidated Statements of Shareholders' Equity for the years ended June 28, 2015 and June
29, 2014.
Consolidated Statements of Cash Flows for the years ended June 28, 2015 and June 29, 2014.
Supplemental Disclosures of Cash Flow Information for the years ended June 28, 2015 and
June 29, 2014.
Notes to Consolidated Financial Statements.
F-2
F-3
F-4
F-5
F-6
F-6
F-7
F
1
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Rave Restaurant Group, Inc.
The Colony, Texas
We have audited the accompanying consolidated balance sheets of Rave Restaurant Group, Inc. as of June 28, 2015 and
June 29, 2014 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the fiscal
years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Rave Restaurant Group, Inc. as of June 28, 2015 and June 29, 2014, and the results of its operations and cash
flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of
America.
/s/ Montgomery Coscia Greilich LLP
Plano, Texas
September 24, 2015
F 2
F 3
June 28,June 29,20152014REVENUES:48,199$ 42,224$ COSTS AND EXPENSES:Cost of sales41,307 36,325 Franchise expenses3,154 2,931 General and administrative expenses4,792 4,373 Pre-opening expenses721 161 Impairment of long-lived assets and other lease charges300 253 Bad debt153 253 Interest expense113 142 50,540 44,438 LOSS FROM CONTINUINGOPERATIONS BEFORE TAXES(2,341) (2,214) Income tax benefit(670) (760) LOSS FROMCONTINUING OPERATIONS(1,671) (1,454) Loss from discontinued operations, net of taxes(168) (113) NET LOSS(1,839)$ (1,567)$ LOSS PER SHARE OF COMMON STOCK - BASIC:Loss from continuing operations(0.17)$ (0.17)$ Loss from discontinued operations(0.02)$ (0.01)$ Net loss(0.19)$ (0.18)$ LOSS PER SHARE OF COMMONSTOCK - DILUTED:Loss from continuing operations(0.16)$ (0.16)$ Loss from discontinued operations(0.02)$ (0.01)$ Net loss(0.18)$ (0.17)$ Weighted average commonshares outstanding - basic9,7448,635Weighted average commonshares outstanding - diluted10,3069,173See accompanying Report of Independent Registered PublicAccounting Firm and Notes to Consolidated Financial Statements.RAVE RESTAURANT GROUP, INCCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)Fiscal Year Ended
F 4
RAVE RESTAURANT GROUP, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share amounts)June 28,June 29,ASSETS20152014CURRENT ASSETSCash and cash equivalents$5,958 $2,796 Accounts receivable, less allowance for doubtfulaccounts of $193 and $276, respectively3,437 3,276 Notes receivable24 81 Inventories180 1,703 Income tax receivable492 386 Deferred income tax assets729 951 Prepaid expenses and other872 173 Total current assets11,692 9,366 LONG-TERM ASSETSProperty, plant and equipment, net10,020 5,133 Long-term notes receivable119 134 Long-term deferred tax asset1,864 939 Deposits and other276 396 Total assets$23,971 $15,968 LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable - trade$2,875 $2,023 Accrued expenses1,267 926 Deferred rent155 163 Deferred revenues374 177 Bank debt- 500 Total current liabilities4,671 3,789 LONG-TERM LIABILITIESBank debt, net of current portion- 267 Deferred rent, net of current portion893 822 Deferred revenues, net of current portion1,166 791 Deferred gain on sale of property9 34 Other long-term liabilities22 23 Total liabilities6,761 5,726 COMMITMENTS AND CONTINGENCIES (See Notes F and J)SHAREHOLDERS' EQUITYCommon stock, $.01 par value; authorized 26,000,000shares; issued 17,374,735 and 16,240,412 shares, respectively;outstanding 10,255,335 and 9,121,012 shares, respectively174 162 Additional paid-in capital24,700 15,905 Retained earnings16,972 18,811 Treasury stock at cost7,119,400 shares(24,636) (24,636) Total shareholders' equity 17,210 10,242 Total liabilities and shareholders' equity $23,971 $15,968 See accompanying Report of Independent Registered PublicAccounting Firm and Notes to Consolidated Financial Statements.
F 5
Paid-inRetainedSharesAmountCapitalEarningsSharesAmountTotal BALANCE, JUNE 30, 20138,193 153$ 10,174$ 20,378$ (7,119) (24,636)$ 6,069$ Stock compensation expense- - 68 - - - 68 Stock options exercised39 - 82 - - - 82 Sale of Stock889 9 5,581 - - - 5,590 Net loss- - - (1,567) - - (1,567) BALANCE, JUNE 29, 20149,121 162$ 15,905$ 18,811$ (7,119) (24,636)$ 10,242$ Stock compensation expense- - 128 - - - 128 Stock options exercised170 2 424 - - - 426 Sale of stock964 10 8,243 - - - 8,253 Net loss- - - (1,839) - - (1,839) BALANCE, JUNE 28, 201510,255 174$ 24,700$ 16,972$ (7,119) (24,636)$ 17,210$ Accounting Firm and Notes to Consolidated Financial Statements.Common StockAdditionalRAVE RESTAURANT GROUP, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(In thousands)See accompanying Report of Independent Registered PublicTreasury Stock
F 6
June 28,June 29,20152014CASH FLOWS FROM OPERATING ACTIVITIES:Net loss(1,839)$ (1,567)$ Adjustments to reconcile net loss to cash provided by (used in) operating activities:Impairment of fixed assets and other assets300 253 Depreciation and amortization1,617 1,454 (Gain) loss on the sale of assets49 (97) Provision for bad debt153 48 Stock compensation expense128 68 Deferred income taxes(703) (840) Changes in operating assets and liabilities:Notes and accounts receivable(240) (70) Income tax receivable(107) (41) Inventories1,523 (88) Prepaid expenses and other(705) (213) Deferred revenue545 404 Accounts payable - trade852 451 Accrued expenses404 163 Cash provided by (used for) operating activities1,977 (75) CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of assets- 106 Capital expenditures(6,727) (2,068) Cash used for investing activities(6,727) (1,962) CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of bank debt- - Repayments of bank debt(767) (1,758) Proceeds from sale of stock8,253 5,590 Proceeds from exercise of stock options426 82 Cash provided by financing activities7,912 3,914 Net increase in cash and cash equivalents3,162 1,877 Cash and cash equivalents, beginning of year2,796 919 Cash and cash equivalents, end of year5,958$ 2,796$ CASH PAID FOR:Interest113$ 142$ Income taxes19$ 17$ Accounting Firm and Notes to Consolidated Financial Statements.Fiscal Year EndedRAVE RESTAURANT GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)See accompanying Report of Independent Registered PublicSUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
RAVE RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
Rave Restaurant Group, Inc. and its subsidiaries (collectively referred to as the “Company”, or in the first
person notations of “we”, “us” and “our”) operate and franchise pizza buffet, delivery/carry-out and express restaurants
domestically and internationally under the trademark “Pizza Inn” and operate and franchise domestic fast casual
restaurants under the trademarks “Pie Five Pizza Company” or “Pie Five”. We provide or facilitate the procurement and
distribution of food, equipment and supplies to our domestic and international system of restaurants through our Norco
Restaurant Services Company (“Norco”) division and through agreements with third party distributors.
As of June 28, 2015, we owned and operated 26 restaurants comprised of 24 Pie Five restaurants (“Pie Five
Units”) and two Pizza Inn buffet restaurants (“Buffet Units”). As of that date, we also had 30 franchised Pie Five Units
and 248 franchised Pizza Inn restaurants. The 177 domestic franchised Pizza Inn restaurants were comprised of 99
Buffet Units, 21 delivery/carry-out restaurants (“Delco Units”) and 57 express restaurants (“Express Units”). The 71
international franchised Pizza Inn restaurants were comprised of 18 Buffet Units, 45 Delco Units and eight Express
Units. Domestic restaurants were located predominantly in the southern half of the United States, with Texas, North
Carolina, Arkansas and Tennessee accounting for approximately 29%, 12%, 11% and 8%, respectively, of the total
number of domestic restaurants.
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.
Reclassifications:
Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
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.
Concentration of Credit Risk:
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily
of cash and cash equivalents. At June 28, 2015 and June 29, 2014 and at various times during the fiscal years then
ended, cash and cash equivalents were in excess of Federal Depository Insurance Corporation insured limits. We do not
believe we are exposed to any significant credit risk on cash and cash equivalents.
Inventories:
Inventory consists primarily of food, paper products and supplies stored in and used by Company restaurants
and was stated at lower of first-in, first-out (“FIFO”) or market. The valuation of such restaurant inventory requires us to
estimate the amount of obsolete and excess inventory based on estimates of future retail sales by Company-owned
restaurants. Overestimating retail sales by Company-owned restaurants could result in the write-down of inventory
which would have a negative impact on the gross margin of such Company-owned restaurants.
F 7
Closed Restaurants and Discontinued Operations:
In April, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which modifies the
definition of discontinued operations to include only disposals of an entity that represent strategic shifts that have or will
have a major effect on an entity’s operation and requires entities to disclose information about disposals of individually
significant components that do not meet the definition of discontinued operations. The standard is effective
prospectively for annual and interim periods beginning after December 15, 2014, with early adoption permitted. This
pronouncement did not have a material impact on our condensed consolidated financial statements
The authoritative guidance on “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that
discontinued operations that meet certain criteria be reflected in the statement of operations after results of continuing
operations as a net amount. This guidance also requires that the operations of closed restaurants, including any
impairment charges, be reclassified to discontinued operations for all periods presented.
The authoritative guidance on “Accounting for Costs Associated with Exit or Disposal Activities,” requires that
a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This
authoritative guidance also establishes that fair value is the objective for initial measurement of the liability.
Discontinued operations include losses from two Pizza Inn locations in Texas. One is a leased building
associated with a Company-owned restaurant closed during fiscal 2008. The other is results of operations for a
Company-owned restaurant that was closed in the fourth quarter of fiscal 2014 due to declining sales.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Repairs and
maintenance are charged to operations as incurred while major renewals and betterments are capitalized. Upon the sale
or disposition of a fixed asset, the asset and the related accumulated depreciation or amortization are removed from the
accounts and the gain or loss is included in operations. The Company capitalizes interest on borrowings during the
active construction period of major capital projects. Capitalized interest is added to the cost of the underlying asset and
amortized over the estimated useful life of the asset.
Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the
assets or, in the case of leasehold improvements, over the term of the lease including any reasonably assured renewal
periods, if shorter. The useful lives of the assets range from three to ten years.
Impairment of Long-Lived Asset and other Lease Charges:
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 an asset compared to its carrying value. If impairment is recognized, the
carrying value of the impaired asset is reduced to its fair value, based on discounted estimated future cash flows. During
fiscal year 2015 and 2014, the Company tested its long-lived assets for impairment and recognized pre-tax, non-cash
impairment charges of $0.3 million each year related to the carrying value of one Company-owned Buffet Unit in Texas
and two Company-owned Pie Five Units in Texas.
Accounts Receivable:
Accounts receivable consist primarily of receivables from food and supply sales and franchise royalties. The
Company records a provision for doubtful receivables to allow for any amounts that may be unrecoverable based upon
an analysis of the Company's prior collection experience, customer creditworthiness and current economic trends. After
all attempts to collect a receivable have failed, the receivable is written off against the allowance. Finance charges may
be accrued at a rate of 18% per year, or up to the maximum amount allowed by law, on past due receivables. The
interest income recorded from finance charges is immaterial.
F 8
Notes Receivable:
Notes receivable primarily consist of accounts receivable from franchisees converted into notes. The majority
of amounts and terms are contained under formal promissory and personal guarantee agreements. All notes allow for
early payment without penalty. Fixed principle and interest payments are due weekly or monthly. Interest income is
recognized monthly. Notes receivable mature at various dates through 2024 and bear interest at rates that range from 5%
to 7% (6% average rate at June 28, 2015).
Management evaluates the creditworthiness of franchisees by considering credit history and sales to evaluate
credit risk. Management determines interest rates based on credit risk of the underlining franchisee. The Company
monitors payment history to determine whether or not a loan should be placed on a nonaccrual status or impaired.
The Company charges off notes receivable based on an account-by-account analysis of the borrower’s current
economic conditions, monthly payments history and historical loss experience. The allowance for doubtful notes
receivable is included with the allowance for doubtful accounts. Notes receivable as of June 28, 2015 totaled $143,000,
of which $24,000 was included in current assets and $119,000 was included in long-term assets in the accompanying
balance sheet.
The principal balance outstanding on the notes receivable and expected principal collections for the next five
years and thereafter were as follows as of June 28, 2015 (in thousands):
Two notes totaling $48,813 were charged off for the fiscal year ended June 28, 2015.
Income Taxes:
Income taxes are accounted for using the asset and liability method pursuant to the authoritative guidance on
Accounting for Income Taxes. Deferred taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences between the financial statement and carrying
amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes for a change in tax rates is
recognized in income in the period that includes the enactment date. The Company recognizes future tax benefits to the
extent that realization of such benefits is more likely than not.
Management evaluates the deferred tax asset at the end of each fiscal quarter to determine if an allowance
against the deferred tax asset is required, and at the end of fiscal years 2015 and 2014 determined that it was more likely
than not that the deferred tax asset would be fully realized based on the expectation of future taxable income and the
future reversal of temporary differences. Therefore, no allowance was recorded. This determination and future
estimates could be impacted by changes in future taxable income, the results of tax strategies or changes in tax laws.
The Company follows authoritative guidance that 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. This authoritative guidance requires that a company recognize in its financial statements the impact
of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be measured based on the largest benefit that
has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of June 28, 2015 and June 29,
2014, the Company had no uncertain tax positions. Federal returns for tax years 2011 through 2014 remained open for
examination as of June 28, 2015.
F 9
NotesReceivable201621201792018122019152020 and thereafter86143$
Pre-Opening Expense:
The Company's pre-opening costs are expensed as incurred and generally include payroll and other direct costs
associated with training new managers and employees prior to opening a new restaurant, rent and other unit operating
expenses incurred prior to opening, and promotional costs associated with the opening.
Related Party Transactions:
On February 20, 2014, the Company entered into an Advisory Services Agreement (the “Agreement”) with
NCM Services, Inc. (“NCMS”) pursuant to which NCMS provides certain advisory and consulting services to the
Company. NCMS is indirectly owned and controlled by Mark E. Schwarz, the Chairman of the Company. The term of
the Agreement commenced December 30, 2013, and continues quarterly thereafter until terminated by either
party. Pursuant to the Agreement, NCMS was paid an initial fee of $150,000 and earns quarterly fees of $50,000 and an
additional fee of up to $50,000 per quarter (not to exceed an aggregate of $100,000 in additional fees). The quarterly and
additional fees are waived if the Company is not in compliance with all financial covenants under its primary credit
facility or to the extent that payment of those fees would result in non-compliance with such financial covenants. As of
June 28, 2015, the accrued liability relating to services performed by NCMS was $133,336.
Revenue Recognition:
The Company recognizes food and supply revenue when products are delivered and the customer takes
ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an
arrangement exists and the sales price is fixed or determinable. The Company's Norco division sells food and supplies to
franchisees on trade accounts under terms common in the industry. Shipping and handling costs billed to customers are
recognized as revenue and the associated costs are included in cost of sales.
Franchise revenue consists of income from license fees, royalties, and area development and foreign master
license sales. License fees are recognized as income when there has been substantial performance of the agreement by
both the franchisee and the Company, generally at the time the restaurant is opened. Royalties are recognized as income
when earned. For the fiscal years ended June 28, 2015 and June 29, 2014, 82% and 91%, respectively, of franchise
revenue was comprised of recurring royalties.
We recognize restaurant sales when food and beverage products are sold. The Company reports revenue net of
sales and use taxes collected from customers and remitted to governmental taxing authorities.
Stock Options:
We account 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.
The Company’s stock-based compensation plans are described more fully in Note H. Stock options under
these plans are granted at exercise prices equal to the fair market value of the Company’s stock at the dates of grant.
Generally those options vest ratably over various vesting periods.
Fair Value of Financial Instruments:
The carrying amounts of accounts receivable and accounts payable approximate fair value because of the short
maturity of these instruments. The Company had no bank debt at June 28, 2015.
Advertising and Marketing Costs:
Advertising and marketing costs are expensed as incurred and totaled $0.7 million for both fiscal years ended
June 28, 2015, and June 29, 2014. Advertising and marketing costs are included in cost of sales and general and
administrative expenses in the consolidated statements of operations.
F 10
Contingencies:
Provisions for legal settlements are accrued when payment is considered probable and the amount of loss is
reasonably estimable in accordance with the authoritative guidance on Accounting for Contingencies. If the best
estimate of cost can only be identified within a range and no specific amount within that range can be determined more
likely than any other amount within the range, and the loss is considered probable, the minimum of the range is accrued.
Legal and related professional services costs to defend litigation are expensed as incurred.
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.
Fiscal Year:
The Company's fiscal year ends on the last Sunday in June. The fiscal year ended June 28, 2015 and the fiscal
year ended June 29, 2014 both contained 52 weeks.
NOTE B – PROPERTY, PLANT AND EQUIPMENT:
Property, and plant and equipment consist of the following (in thousands):
Depreciation and amortization expense was approximately $1.6 million and $1.5 million for the fiscal years
ended June 28, 2015 and June 29, 2014, respectively.
NOTE C - ACCRUED EXPENSES:
Accrued expenses consist of the following (in thousands):
F 11
Estimated UsefulJune 28,June 29,Lives20152014Equipment, furniture and fixtures3 - 7 yrs$6,927 $4,864 Software5 yrs637 424 Vehicle2 - 3 yrs19 19 Leasehold improvements 10 yrs or lease term, if shorter9,134 4,820 16,717 10,127 Less: accumulated depreciation/amortization(6,697) (4,994) $10,020 $5,133 June 28,June 29,20152014Compensation$587 $455 Other506 244 Professional fees79 132 Insurance loss reserves95 95 $1,267 $926
NOTE D - LONG-TERM DEBT:
On August 28, 2012, the Company entered into a Loan and Security Agreement (the “F&M Loan Agreement”)
with The F&M Bank & Trust Company (“F&M”) providing for a $2.0 million revolving credit facility (with a $500
thousand letter of credit subfacility), a $2.0 million fully funded term loan facility and a $6.0 million advancing term
loan facility. An origination fee of 0.5% of the total credit facilities was paid at closing. At closing, F&M funded a $2.0
million term loan payable in 48 equal monthly installments of principal plus accrued interest at a fixed rate of 4.574%
per annum. Amounts repaid under this fully funded term loan could not be reborrowed. Initial proceeds from the F&M
Loan Agreement were used to repay amounts borrowed under a previous credit facility that subsequently was canceled.
On June 13, 2013 the Company entered into a First Amendment to the F&M Loan Agreement that revised
certain financial covenants to address proceeds from the Company’s at-the-market offerings of common stock. On
September 10, 2013 the Company entered into a Second Amendment to the F&M Loan Agreement that specified the
application of prepayments to the loan amortization schedule and revised certain definitions.
The Company could borrow, repay and reborrow under the revolving credit facility through August 28, 2014, at
which time all amounts outstanding under the revolving credit facility would mature. The Company did not draw
borrowings on the revolving credit facility during fiscal 2015 and allowed it to expire. An unused commitment fee of
0.50% per annum was payable quarterly on the average unused portion of the revolving credit facility.
Through August 28, 2014, F&M had agreed to make up to $6.0 million in additional term loans to the
Company. However, no amounts were outstanding on the advancing term loan facility at the expiration of the advance
period. As of September 26, 2014, the balance on the initial term loan facility was also paid in full. As a result, the
F&M Loan Agreement expired by its terms.
Management believes the cash on hand combined with cash from operations and proceeds from the 2014 ATM
Offering will be sufficient to fund operations for the next 12 months.
NOTE E - INCOME TAXES:
Provision for income taxes from continuing operations consists of the following (in thousands):
Included in loss from discontinued operations is $86,000 and $59,000 of tax benefit for the fiscal years ended
June 28, 2015 and June 29, 2014, respectively.
The effective income tax rate varied from the statutory rate for the fiscal years ended June 28, 2015 and June
29, 2014 as reflected below (in thousands):
F 12
June 28,June 29,20152014Current - Federal$- $- Current - Foreign24 - Current - State29 18 Deferred - Federal(674) (722) Deferred - State(49) (56) Provision for income taxes$(670) $(760) Fiscal Year Ended
The tax effects of temporary differences that give rise to the net deferred tax assets consisted of the following
(in thousands):
At the end of fiscal 2015, the Company had federal and state net operating loss carryforwards of $5.1 million
and $1.8 million that are available to reduce future taxable income and will begin to expire in 2033. Of these amounts,
approximately $0.6 million is related to excess stock compensation that will be recorded as additional paid-in capital
when realized as a reduction in taxes payable. These net operating loss carryforwards result in a deferred tax asset of
$1.6 million and $0.7 million at June 28, 2015, and June 29, 2014, respectively. Management believes that future
operations will generate sufficient taxable income, along with the reversal of temporary differences, to fully realize the
net deferred tax asset.
NOTE F - LEASES:
Premises occupied by Company-owned restaurants are leased for initial terms of five to ten years, and each has
multiple renewal terms. Certain lease agreements contain either a provision requiring additional rent if sales exceed
specified amounts or an escalation clause based upon a predetermined multiple.
In fiscal 2007, the Company sold its corporate office building and distribution facility located at 3551 Plano
Parkway, The Colony, Texas, and entered into a ten-year lease agreement for the corporate office building.
F 13
June 28,June 29,20152014Federal income taxes based on 34%of pre-tax income$(796) $(763) State income tax, net of federal effect(13) (52) Permanent adjustments44 8 Foreign tax credits24 - Other71 47 $(670) $(760) June 28,June 29,20152014CurrentReserve for bad debt$69 $98 Deferred fees124 54 Other reserves and accruals536 798 729 950 Non CurrentCredit carryforwards180 181 Net operating loss carryforwards1,633 734 Depreciable assets51 24 Total gross deferred tax asset2,593 1,889 Valuation allowance- - Net deferred tax asset$2,593 $1,889
Future minimum rental payments under non-cancelable leases, net of subleases, with initial or remaining terms
of one year or more at June 28, 2015 were as follows (in thousands):
Rental expense consisted of the following (in thousands):
NOTE G - EMPLOYEE BENEFITS:
The Company has a tax advantaged savings plan that is designed to meet the requirements of Section 401(k) of
the Internal Revenue Code (the “Code”). The current plan is a modified continuation of a similar savings plan
established by the Company in 1985. Employees who have completed six months of service and are at least 21 years of
age are eligible to participate in the plan. The plan provides that participating employees may elect to have between 1%
and 15% of their compensation deferred and contributed to the plan subject to certain IRS limitations. Effective June 27,
2005, the Company contributes on behalf of each participating employee an amount equal to 50% of the employee’s
contributions up to 4% of compensation. Separate accounts are maintained with respect to contributions made on behalf
of each participating employee. Employer matching contributions and earnings thereon are invested in the same
investments as each participant’s employee deferral. The plan is subject to the provisions of the Employee Retirement
Income Security Act, as amended, and is a profit sharing plan as defined in Section 401(k) of the Code.
For the fiscal years ended June 28, 2015 and June 29, 2014, total matching contributions to the tax advantaged
savings plan by the Company on behalf of participating employees were approximately $39,000 and $12,000,
respectively.
NOTE H - STOCK OPTIONS:
In June 2005, the 2005 Employee Incentive Stock Option Award Plan (the “2005 Employee Plan”) was
approved by the Company’s shareholders with a plan effective date of June 23, 2005. Under the 2005 Employee Plan,
officers and employees of the Company were eligible to receive options to purchase shares of the Company’s common
stock. Options were granted at market value of the stock on the date of grant, were subject to various vesting and
exercise periods as determined by the Compensation Committee of the board of directors, and could be designated as
non-qualified or incentive stock options. A total of 1,000,000 shares of common stock were authorized for issuance
under the 2005 Employee Plan. During the 2015 fiscal year, options to purchase 92,000 shares were granted under the
2005 Employee Plan. Also during the 2015 fiscal year, 3,000 shares of common stock were issued upon the exercise of
options granted under the 2005 Employee Plan. The 2005 Employee Plan expired by its terms on June 23, 2015.
The shareholders also approved the 2005 Non-Employee Directors Stock Award Plan (the “2005 Directors
Plan”) in June 2005, to be effective as of June 23, 2005. Directors not employed by the Company were eligible to
receive stock options under the 2005 Directors Plan. Options for common stock equal to twice the number of shares of
F 14
OperatingLeases2016$2,41420172,07720181,75720191,70920201,660Thereafter5,946$15,563June 28,June 29,20152014Minimum rentals$1,666 $1,448 Sublease rentals(221) (182) $1,445 $1,266 Fiscal Year Ended
common stock acquired during the previous fiscal year, up to 40,000 shares per year, were automatically granted to each
non-employee director on the first day of each fiscal year. Options were granted at market value of the stock on the first
day of each fiscal year, with vesting periods beginning at a minimum of six months and with exercise periods up to ten
years. A total of 650,000 shares of Company common stock were authorized for issuance pursuant to the 2005 Directors
Plan. During the 2015 fiscal year, 28,800 options were granted under the 2005 Directors Plan. Also during the 2015
fiscal year, 167,200 shares of common stock were issued upon the exercise of options granted under the 2005 Directors
Plan. The 2005 Directors Plan expired by its terms on June 23, 2015.
The 2015 Long Term Incentive Plan (the “2015 LTIP”) was approved by the Company’s shareholders on
November 18, 2014, and became effective June 1, 2015. Officers, employees and non-employee directors of the
Company are eligible to receive awards under the 2015 LTIP. A total of 1,200,000 shares of common stock are
authorized for issuance under the 2015 LTIP. Awards authorized under the 2015 LTIP include incentive stock options,
non-qualified stock options, restricted shares, restricted stock units and rights (either with or without accompanying
options). The 2015 LTIP provides for options to be granted at market value of the stock on the date of grant and have
exercise periods determined by the Compensation Committee of the board of directors. The Compensation Committee
may also determine the vesting periods, performance criteria and other terms and conditions of all awards under the 2015
LTIP. As of June 28, 2015, no awards had been granted under the 2015 LTIP.
A summary of stock option transactions under all of the Company’s stock option plans and information about
fixed-price stock options is as follows:
At June 28, 2015, the total intrinsic value of options outstanding was $8.6 million and of options exercisable
was $4.3 million.
The following table provides information on options outstanding and options exercisable as of June 28, 2015:
F 15
Weighted-Weighted-AverageAverageExerciseExerciseSharesPriceSharesPriceOutstanding at beginningof year921,198 2.92$ 851,306 2.54$ Granted120,800 6.57$ 147,892 4.92$ Exercised(170,200) 2.50$ (39,144) 2.12$ Forfeited/Canceled/Expired- -$ (38,856) 3.15$ Outstanding at end of year871,798 3.51$ 921,198 2.92$ Exercisable at end of year406,378 2.63$ 473,659 2.43$ Weighted-average fair value ofoptions granted during the year3.16$ 3.64$ Total intrinsic value of options exercised425,944$ 82,845$ June 28, 2015 June 29, 2014Fiscal Year Ended
We determine fair value following the authoritative guidance as follows:
Valuation and Amortization Method. We estimate the fair value of share-based awards granted using the
Black-Scholes option valuation model. We amortize the fair value of all awards on a straight-line basis over the requisite
service periods, which are generally the vesting periods.
Expected Life. The expected life of awards granted represents the period of time that they are expected to be
outstanding. Unless a life is specifically stated, we determine the expected life using the “simplified method” in
accordance with Staff Accounting Bulletin No. 110 since we do not have sufficient historical share option exercise
experience.
Expected Volatility. Using the Black-Scholes option valuation model, we estimate the volatility of our common
stock at the date of grant based on the historical volatility of our common stock.
Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option valuation model on
the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the
expected life of the award.
Expected Dividend Yield. We have not paid any cash dividends on our common stock in the last ten years and
we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend
yield of zero in the Black-Scholes option valuation model.
Expected Forfeitures. We use historical data to estimate pre-vesting option forfeitures. We record stock-based
compensation only for those awards that are expected to vest.
The following weighted average assumptions were used for options granted in the last two fiscal years:
The share based compensation expense is included in general and administrative expense in the statement of
operations.
F 16
Weighted-AverageOptionsRemainingWeighted-OptionsWeighted-Range ofOutstandingContractualAverageExercisableAverageExercise Pricesat June 28, 2015Life (Years)Exercise Priceat June 28, 2015Exercise Price$1.55 - 1.9581,3064.1$1.9081,306$1.90$1.96 - 2.3590,0003.0$2.3290,000$2.32$2.36 - 2.75397,0007.2$2.57145,000$2.60$2.76 - 3.3055,0007.0$3.1155,000$3.11$3.31 - 3.8141,5287.5$3.8112,458$1.52$5.51 - 5.748,6648.0$5.748,664$5.74$5.95 - 6.25153,3008.9$6.0612,450$6.02$6.26 - 8.1645,0008.9$8.091,500$8.16871,7986.9$3.51406,378$2.63Options OutstandingOptions ExercisableJune 28,June 29,Fiscal Year Ended20152014Expected life (in years)5.9 6.0 Expected volatility39.1%42.8%Risk-free interest rate1.9%1.5%Expected forfeiture rate47.1%58.2%
At June 28, 2015, the Company had unvested options to purchase 465,420 shares with a weighted average grant
date fair value of $2.66. The total remaining unrecognized compensation cost related to unvested awards amounted to
approximately $0.4 million at June 28, 2015. The weighted average remaining requisite service period of the unvested
awards was 15.1 months. Stock compensation expense of $0.1 million was recognized in each of fiscal years 2015 and
2014.
NOTE I - SHAREHOLDERS’ EQUITY:
On April 22, 2009, the board of directors of the Company amended the stock repurchase plan first authorized on
May 23, 2007, and previously amended on June 2, 2008, 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. No shares were repurchased during fiscal
2015 and, as of June 28, 2015, there were 848,425 shares available to repurchase under the plan.
On May 20, 2013, the Company entered into an At-the-Market Issuance Sales Agreement with MLV & Co.
LLC (“MLV”) pursuant to which the Company could offer and sell shares of its common stock having an aggregate
offering price of up to $3,000,000 from time to time through MLV, acting as agent (the “2013 ATM Offering”). The
2013 ATM Offering was undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which was
declared effective by the SEC on May 13, 2013. On November 20, 2013, the Company and MLV amended the At-the-
Market Issuance Sales Agreement and the SEC declared effective a new shelf Registration Statement on Form S-3 to
increase the 2013 ATM Offering by $5,000,000. The Company ultimately sold an aggregate of 1,257,609 shares in the
2013 ATM Offering, realizing aggregate net proceeds of $7.8 million.
On October 1, 2014, the Company entered into a new At Market Issuance Sales Agreement with MLV pursuant
to which the Company could initially offer and sell shares of its common stock having an aggregate offering price of up
to $5,000,000 from time to time through MLV, acting as agent (the “2014 ATM Offering”). On February 13, 2015, the
aggregate offering amount of the 2014 ATM Offering was increased to $10,000,000. The 2014 ATM Offering is being
undertaken pursuant to Rule 415 and a shelf Registration Statement on Form S-3 which was declared effective by the
SEC on August 8, 2014. Through June 28, 2015, the Company had sold an aggregate of 767,463 shares in the 2014
ATM Offering, realizing aggregate net proceeds of $7.1 million.
The Company pays to MLV a fee equal to 3% of the gross sales price in addition to reimbursing certain costs.
Expenses associated with the 2013 ATM Offering and 2014 ATM Offering were $42,000 and $43,000 in fiscal 2015 and
fiscal 2014, respectively, which includes fees and expense reimbursement to MLV and legal and other offering expenses
incurred by the Company.
NOTE J - COMMITMENTS AND CONTINGENCIES:
The Company is subject to various claims and contingencies related to employment agreements, franchise
disputes, lawsuits, taxes, food product purchase contracts and other matters arising out of the normal course of business.
Management believes that any such claims and actions currently pending are either covered by insurance or would not
have a material adverse effect on the Company's annual results of operations or financial condition if decided in a
manner that is unfavorable to us.
NOTE K - EARNINGS PER SHARE:
The Company computes and presents earnings per share (“EPS”) in accordance with the authoritative guidance
on Earnings Per Share. Basic EPS excludes the effect of potentially dilutive securities while diluted EPS reflects the
potential dilution that would occur if securities or other contracts to issue common stock were exercised, converted or
resulted in the issuance of common stock that then shared in the earnings of the entity.
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).
F 17
NOTE L– SEGMENT REPORTING:
The Company has two reportable operating segments as determined by management using the “management
approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related
Information: (1) Franchising and Food and Supply Distribution, and (2) 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
two operating segments. Other revenue consists of nonrecurring items.
The Franchising and Food and Supply Distribution segment establishes franchisees and franchise territorial
rights and sells and distributes proprietary and non-proprietary food and other items to franchisees. Revenue for this
segment is derived from the sale of distributed products and franchise royalties, franchise fees and sale of area
development and foreign master license rights. Assets for this segment include equipment, furniture and fixtures.
The Company-owned Restaurant segment includes sales and operating results for all Company-owned
restaurants. Assets for this segment include equipment, furniture and fixtures for the Company-owned restaurants.
Corporate administration and other assets primarily include the deferred tax asset, cash and short-term
investments, as well as furniture and fixtures located at the corporate office and trademarks and other intangible assets.
All assets are located within the United States.
Summarized in the following 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 and for the fiscal years ended June 28, 2015 and June 29, 2014 (in thousands):
F 18
June 28,June 29,20152014Loss from continuing operations(1,671)$ (1,454)$ Discontinued operations(168) (113) Net loss available to common stockholders(1,839)$ (1,567)$ BASIC:Weighted average common shares9,7448,635Loss from continuing operations per common share(0.17)$ (0.17)$ Discontinued operations per common share(0.02) (0.01) Net loss per common share(0.19)$ (0.18)$ DILUTED:Weighted average common shares9,7448,635Stock options562538Weighted average common shares outstanding10,3069,173Loss from continuing operations per common share(0.16)$ (0.16)$ Discontinued operations per common share(0.02) (0.01) Net loss per common share(0.18)$ (0.17)$ Fiscal Year Ended
The following table provides information on our foreign and domestic revenues:
F 19
June 28,June 29,20152014Net sales and operating revenues:Franchising and food and supply distribution35,330$ 32,253$ Company-owned restaurants (1)12,869 9,971 Consolidated revenues48,199$ 42,224$ Depreciation and amortization:Franchising and food and supply distribution24$ 19$ Company-owned restaurants (1)1,374 1,244 Combined1,398 1,263 Corporate administration and other219 191 Depreciation and amortization1,617$ 1,454$ Loss from continuing operations before taxesFranchising and food and supply distribution (2)1,492$ 762$ Company-owned restaurants (1) (2)(1,429) (1,212) Combined63 (450) Impairment of long-lived assets and other lease charges(300) (253) Corporate administration and other (2)(2,104) (1,511) Loss from continuing operations before taxes(2,341)$ (2,214)$ Capital Expenditures:Franchising and food and supply distribution-$ -$ Company-owned restaurants6,443 1,918 Corporate administration284 150 Combined capital expenditures6,727$ 2,068$ Assets:Franchising and food and supply distribution4,314$ 5,231$ Company-owned restaurants11,088 4,631 Corporate administration8,569 6,106 Combined assets23,971$ 15,968$ (1)Company stores that were closed are included in discontinued operations in the accompanying Condensed Consolidated Statement of Operations.(2)Portions of corporate administration and other have been allocated to segments.Fiscal Year EndedGeographic information (revenues):United States47,509$ 41,342$ Foreign countries690 882 Consolidated total48,199$ 42,224$
CORPORATE INFORMATION
OFFICERS
Randall E. Gier
President/Chief Executive Officer
Timothy E. Mullany
Chief Financial Officer/Secretary
DIRECTORS
Mark E. Schwarz
Chairman of the Board
Chairman and Chief Executive Officer
of Newcastle Capital Management, L.P.
Ramon D. Phillips
Former Chairman of the Board
and Chief Executive Officer of
Hallmark Financial Services, Inc.
Robert B. Page
Independent Restaurant Consultant
Former Chief Executive Officer of
Backyard Burgers, Inc.
William C. Hammett, Jr.
Former Chief Executive Officer of iH3, LLC
Clinton J. Coleman
Managing Director of
Newcastle Capital Management, L.P.
Steven M. Johnson
Jimmy John’s Franchisee and
Former Chief Executive Officer of
F&H Acquisition Corp
CORPORATE OFFICE
RAVE Restaurant Group, Inc.
3551 Plano Parkway
The Colony, TX 75056
(469) 384-5000
Internet: http://www.raverg.com
NORCO DISTRIBUTION CENTER
Norco Restaurant Services Company
3551 Plano Parkway
The Colony, TX 75056
(469) 384-5050
STOCK EXCHANGE
AND TRADING SYMBOL
RAVE Restaurant Group, Inc. common stock is traded on
the NASDAQ Market System under the symbol “RAVE”.
STOCK TRANSFER AGENT
Securities Transfer Corporation
2591 Dallas Parkway, Suite 102
Frisco, TX 75034
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Montgomery, Coscia and Greilich, LLP
Plano, TX
OUTSIDE LEGAL COUNSEL
McGuire, Craddock & Strother, P.C.
Dallas, TX
LOCATIONS
DOMESTIC
Alabama
Georgia
Kentucky
Missouri
Oklahoma
Tennessee
Illinois
Nebraska
Kansas
Florida
Mississippi
North Carolina
Arkansas
Maryland
Louisiana
New Mexico
South Carolina South Dakota
Texas
Indiana
Utah
Virginia
Michigan
Washington DC
INTERNATIONAL
Bahrain
Bangladesh
Honduras
Kuwait
Oman
Saudi Arabia
United Arab Emirates
INVESTOR INFORMATION
For further information about the company’s common stock, please
write to the Investor Relations Department
at the company’s corporate office.
ANNUAL MEETING
The Annual Meeting of Shareholders will take place on Tuesday,
November 17, 2015 at 10:00 a.m. at
RAVE Restaurant Group, Inc.
3551 Plano Parkway
The Colony, TX 75056
F 20