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2016 Annual Report
1
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 26, 2016.
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
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. []
2
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 27, 2015, 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 $43.7 million computed by reference to the price at which the common equity was last sold on the
NASDAQ Capital Market.
As of September 20, 2016, there were 10,656,551 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 15, 2016,
have been incorporated by reference in Part III of this report.
3
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 26, 2016, we owned and operated 32 restaurants comprised of 31 Pie Five restaurants (“Pie Five
Units”) and one Pizza Inn buffet restaurant (“Buffet Unit”). As of that date, we also had 57 franchised Pie Five
Units and 221 franchised Pizza Inn restaurants. The 161 domestic franchised Pizza Inn restaurants were comprised
of 95 Buffet Units, 15 delivery/carry-out restaurants (“Delco Units”) and 51 express restaurants (“Express Units”).
The 60 international franchised Pizza Inn restaurants were comprised of 12 Buffet Units, 40 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 Kansas accounting for approximately 33%, 12%, 10% and 6%, 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.
4
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 $5.99 to $11.99, and the average ticket price per meal, including a drink, was
approximately $7.75 per person for fiscal year 2016. 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 $6.49 to $8.49,
and the average ticket price, including a drink, was approximately $9.70 per person for fiscal year 2016. 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.
5
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 2017, 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 2017, we intend to continue developing franchised Pie Five Units. As of September 12, 2016, we
had 62 franchised units open and had executed multi-year development agreements with 23 franchisees for up to an
additional 347 Pie Five Units to be located in the U.S., including Arizona, Arkansas, Colorado, Delaware, Florida,
Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New
Mexico, North Carolina, Ohio, 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 2017, 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:
6
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 2017. 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 26, 2016, we operated one Buffet Unit and 31 Pie Five Units, in the Dallas/Fort Worth,
Houston, Atlanta, Minneapolis 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
overall economies of scale for advertising, marketing, information systems, distribution and procurement of food
products, and other costs.
7
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%Require total ad spending % of sales5%2%5%Pizza Inn
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 26, 2016,
there were 60 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
26, 2016 and 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
commodity hedging but enter into pricing arrangements for up to a year in advance for certain high volume
products.
Marketing and Advertising
8
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 26, 2016, the Company-owned Buffet
Unit 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
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.
9
Employees
As of September 12, 2016, we had 558 employees, including 48 in our corporate office and 44 full-time
and 466 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. The Company is in discussions with the landlord to extend the lease, and is also
evaluating alternative options.
As of June 26, 2016, the Company also operated one Pizza Inn Buffet Unit and 31 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 lease obligations for six non-operating locations. These leased properties range in size
from 2,022 to 4,000 square feet, have annual rental rates ranging from approximately $33.00 to $57.00 per square
foot and expire between 2020 and 2026. The Company is currently pursuing alternatives for subleasing or
terminating the unexpired leases.
ITEM 3. LEGAL PROCEEDINGS.
10
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.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of August 19, 2016, there were approximately 1,918 stockholders of record of the Company's common
stock.
The Company had no sales of unregistered securities during fiscal 2016 or 2015.
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 26, 2016
or June 28, 2015. 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 26, 2016.
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 26, 2016, 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 2016:Fourth Quarter Ended 6/26/20165.57$ 3.88$ Third Quarter Ended 3/27/20167.74 4.50 Second Quarter Ended 12/27/20159.70 5.40 First Quarter Ended 9/27/201514.47 8.88 Fiscal 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
Equity Compensation Plan Information
The following table furnishes information with respect to the Company’s equity compensation plans as of
June 26, 2016:
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 (“Buffet Units”), delivery/carry-out (“Delco Units”) and
express (“Express Units”) restaurants domestically and internationally under the trademark “Pizza Inn” and operates
domestic fast casual pizza restaurants (“Pie Five Units”) 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 (“Norco”) division and through agreements with third
party distributors. At June 26, 2016, Company-owned and franchised restaurants consisted of the following (in
thousands, except unit data):
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 holders847,556 $3.771,056,284 Equity compensationplans not approved bysecurity holders- $ - - Total847,556 $3.771,056,284 EndingRetailEndingRetailEndingRetailUnitsSalesUnitsSalesUnitsSalesCompany-Owned1 858$ 31 19,629$ 32 20,487$ Domestic Franchised161 87,804 57 33,681 218 121,485 Total Domestic Units162 88,662$ 88 53,310$ 250 141,972$ International Franchised60 - 60 Pizza InnPie FiveAll Concepts
The domestic restaurants were located in 26 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 $0.67 and $0.65, respectively, to a loss of $0.86 and
$0.83 per share, respectively, for fiscal 2016, compared to $0.19 and $0.18 per share, respectively, in the prior fiscal
year. Net loss increased $7.0 million to a loss of $8.9 million for fiscal 2016 compared to a loss of $1.8 million for
the prior fiscal year on revenues of $60.8 million for fiscal 2016 as compared to $48.2 million in fiscal 2015. The
increased net loss over the prior year was primarily due to impairment expense of $1.7 million and a full valuation
allowance of $4.9 million against all net deferred tax assets, as well as decreased income from the Pizza Inn
international franchisee in the Middle East, increased pre-opening expenses, higher general and administrative and
franchise costs related to additional personnel, and other resources to support the growth of the Pie Five franchising
and opening of Company-owned restaurants. We also experienced lower sales and financial performance by
Company-owned Pie Five stores in newer markets.
Adjusted EBITDA for the fiscal year ended June 26, 2016, decreased to a loss of $0.3 million compared to
a gain of $0.6 million for the comparable period of the prior fiscal year. The following table sets forth a
reconciliation of net income to Adjusted EBITDA for the periods shown (in thousands):
Results of operations for fiscal 2016 and 2015 both included 52 weeks.
14
June 26,June 28,20162015Net loss(8,886)$ (1,839)$ Interest expense4 113 Income taxes2,713 (670) Income taxes--discontinued operations(58) (86) Depreciation and amortization2,722 1,617 EBITDA(3,505)$ (865)$ Stock compensation expense213 128 Pre-opening costs883 721 Impairment charges, non-operating store costs and discontinued operations2,121 586 Adjusted EBITDA(288)$ 570$ 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 $28.0 million, or 110.4%, for the fiscal year ended June 26,
2016 when compared to the prior year. System-wide average weekly sales decreased by $1,491, or 10.0%, to
$13,417 in fiscal year 2016 from $14,907 for fiscal year 2015. Compared to the fiscal year 2015, average units open
in the period increased from 32 to 76. Comparable store retail sales decreased by 5.1% during fiscal 2016 compared
to fiscal 2015.
The following chart summarizes Pie Five restaurant activity for the fiscal year ended June 26, 2016:
We believe that the net addition of 34 Pie Five Units during fiscal 2016 reflects the continued growth in the
opening of Pie Five Units as franchised stores opened pursuant to previously executed franchise development
agreements and the Company continued to develop its own stores in selected metropolitan areas.
15
June 26,June 28,20162015Pie Five Retail Sales - Total Stores Domestic - Franchised33,681$ 13,940$ Domestic - Company-owned19,629 11,398 Total domestic retail sales53,310$ 25,338$ Pie Five Comparable Store Retail Sales - Total14,417$ 15,185$ Pie Five Average Units Open in Period Domestic - Franchised45 16 Domestic - Company-owned31 16 Total domestic Units76 32 Fiscal Year EndedBeginningEndingUnitsOpenedClosedTransferUnitsDomestic - Franchised30 29 3 1 57 Domestic - Company-owned24 12 4 (1) 31 Total domestic Units54 41 7 - 88 Fiscal Year Ended June 26, 2016
As a result of increased store count, total retail sales of Company-owned Pie Five restaurants increased
$8.2 million, or 72.2%, to $19.6 million for fiscal 2016 compared to $11.4 million for fiscal 2015. Average weekly
sales for Company-owned Pie Five restaurants decreased $1,598, or 11.7%, to $12,093 for the fiscal year ended June
26, 2016 compared to $13,691 for the same period of prior year. Company-owned Pie Five restaurant operating cash
flow decreased $0.7 million, or 40.4%, during the fiscal year 2016 compared to the same period of prior year. The
decline in average weekly sales and operating cash flow for Company-owned Pie Five restaurants was primarily
attributable to lower sales and weaker financial performance by stores in newer markets. Loss from continuing
operations before taxes for Company-owned Pie Five stores increased $4.8 million the fiscal year ended June 26,
2016 compared to the same period of the prior year. The higher loss from continuing operations before taxes for
Company-owned Pie Five restaurants was primarily the result of $1.7 million in impairment charges and non-
operating store costs, increased pre-opening expenses in connection with new stores, and increased marketing and
depreciation expenses associated with the expanded store count, as well as the decline in average weekly sales.
16
Pie Five - Company-Owned Restaurants(in thousands, except store weeks and average data)Fiscal Year Ended Continue reading text version or see original annual report in PDF
format above BALANCE, JUNE 29, 20149,121 162$ 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$ Stock compensation expense- - 213 - - - 213 Stock options exercised28 - 102 - - - 102 Sale of stock59 1 763 - - - 764 Net loss- - - (8,886) - - (8,886) BALANCE, JUNE 26, 201610,342 175$ 25,778$ 8,086$ (7,119) (24,636)$ 9,403$ Accounting Firm and Notes to Consolidated Financial Statements.Common StockAdditionalNet loss(8,886)$ (1,839)$ Adjustments to reconcile net loss to cash provided by operating activities:Impairment of fixed assets and other assets1,698 300 Stock compensation expense213 128 Deferred income taxes2,593 (703) Depreciation and amortization2,722 1,617 Loss on the sale of assets432 49 Provision for bad debt101 153 Changes in operating assets and liabilities:Notes and accounts receivable(44) (240) Inventories(17) 1,523 Income tax receivable492 (107) Prepaid expenses and other419 (705) Deferred revenue195 545 Accounts payable - trade940 852 Accrued expenses1,088 404 Cash provided by operating activities1,946 1,977 CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of assets444 - Capital expenditures(8,110) (6,727) Cash used for investing activities(7,666) (6,727) CASH FLOWS FROM FINANCING ACTIVITIES:Repayments of bank debt- (767) Proceeds from sale of stock764 8,253 Proceeds from exercise of stock options102 426 Cash provided by financing activities866 7,912 Net increase in cash and cash equivalents(4,854) 3,162 Cash and cash equivalents, beginning of year5,958 2,796 Cash and cash equivalents, end of year1,104$ 5,958$ CASH PAID FOR:Interest4$ 113$ Income taxes-$ 19$ Accounting Firm and Notes to Consolidated Financial Statements.Fiscal Year EndedRAVE RESTAURANT GROUP, INC.Lives20162015Equipment, furniture and fixtures3 - 7 yrs$9,697 $6,927 Software5 yrs872 637 Vehicle2 - 3 yrs- 19 Leasehold improvements 10 yrs or lease term, if shorter13,290 9,134 23,859 16,717 Less: accumulated depreciation/amortization(10,880) (6,697) $12,979 $10,020 20162015Compensation$728 $587 Other447 506 Professional fees37 79 Insurance loss reserves8 95 $1,220 $1,267 20162015Current - Federal$- $- Current - Foreign- 24 Current - State4 29 Deferred - Federal2,823 (674) Deferred - State(114) (49) Provision for income taxes$2,713 $(670) CurrentReserve for bad debt$70 $69 Deferred fees105 124 Other reserves and accruals1,246 536 1,421 729 Non CurrentCredit carryforwards747 180 Net operating loss carryforwards197 1,633 Depreciable assets2,526 51 Total gross deferred tax asset4,891 2,593 Valuation allowance(4,891) - Net deferred tax asset$- $2,593 Leases2017$3,34620183,05020192,95120202,89920212,892Thereafter10,296$25,434
June 26, 2016 June 28, 2015Fiscal Year EndedMinimum rentals$3,090 $1,666 Sublease rentals(257) (221) $2,833 $1,445 Fiscal Year Ended
NOTE H - STOCK BASED COMPENSATION PLANS:
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. During fiscal 2016, contingencies were satisfied with respect to options to
purchase 18,500 shares of common stock previously conditionally granted under the 2005 Employee Plan.
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 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. The Compensation Committee has adopted resolutions under the
2015 LTIP automatically granting to each non-employee director on the first day of each fiscal year options to
purchase twice the number of shares of common stock acquired during the previous fiscal year, up to a maximum of
40,000 shares. Such options are exercisable at the market value of the stock on the first day of the fiscal year, vest
six months from the date of grant and expire 10 years from the date of grant. During fiscal 2016, options to
purchase 24,286 shares of common stock and 100,190 restricted stock units (representing the right to receive up to
150,285 shares of common stock) were granted under the 2015 LTIP and represent the only awards outstanding
thereunder.
Share based compensation expense is included in general and administrative expense in the statement of
operations.
Stock Options:
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:
F 15
At June 26, 2016, the total intrinsic value of options outstanding was $8.2 million and of options
exercisable was $5.8 million.
The following table provides information on options outstanding and options exercisable as of June 26,
2016:
We determine fair value following the authoritative guidance as follows:
F 16
Outstanding at beginningof year871,798 3.51$ 921,198 2.92$ Granted42,786 10.92$ 120,800 6.57$ Exercised(27,916) 3.65$ (170,200) 2.50$ Forfeited/Canceled/Expired(39,112) 5.67$ - -$ Outstanding at end of year847,556 3.77$ 871,798 3.51$ Exercisable at end of year558,620 2.71$ 406,378 2.63$ Weighted-average fair value ofoptions granted during the year4.24$ 3.16$ Total intrinsic value of options exercised102,010$ 425,944$ $1.55 - 1.9581,3063.1$1.9081,306$1.90$1.96 - 2.3590,0002.0$2.3290,000$2.32$2.36 - 2.75390,0006.2$2.58250,000$2.58$2.76 - 3.3055,0006.0$3.1155,000$3.11$5.51 - 5.748,6647.0$5.748,664$5.74$5.95 - 6.25153,3007.9$6.0666,150$3.40$6.26 - 8.1669,2868.3$9.857,500$8.12847,5565.9$3.77558,620$2.71Options OutstandingOptions Exercisable
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:
At June 26, 2016, the Company had unvested options to purchase 288,936 shares with a weighted average
grant date fair value of $4.47. The total remaining unrecognized compensation cost related to unvested stock
options amounted to approximately $0.2 million at June 26, 2016. The weighted average remaining requisite service
period of the unvested awards was 9.3 months. Stock compensation expense related to stock options of $0.2 million
and $0.1 million was recognized in fiscal years 2016 and 2015, respectively.
Restricted Stock Units:
Restricted stock units awarded under the 2015 LTIP represent the right to receive shares of common stock
upon the satisfaction of vesting requirements, performance criteria and other terms and conditions. During the third
quarter of fiscal 2016, an aggregate of 100,190 restricted stock units were granted to certain employees.
The restricted stock units granted to each recipient are allocated among performance criteria pertaining to
various aspects of the Company’s business, as well as its overall operations, measured based on its fiscal year
ending June 24, 2018. Achievement of the various performance criteria entitles the recipient to receive shares of
common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted. Grantees of
restricted stock units do not have any rights of a stockholder, and do not participate in any distributions on our
common stock, until the award fully vests upon satisfaction of the vesting schedule, performance criteria and other
conditions set forth in their award agreement. Therefore, unvested restricted stock units are not considered
participating securities under ASC 260, “Earnings Per Share,” and are not included in the calculation of basic or
diluted earnings per share.
Compensation cost is measured as an amount equal to the fair value of the restricted stock units on the date
of grant and is expensed over the vesting period if achievement of the performance criteria is deemed probable, with
the amount of the expense recognized based on the best estimate of the ultimate achievement level. The grant date
F 17
June 26,June 28,Fiscal Year Ended20162015Expected life (in years)5.7 5.9 Expected volatility36.0%39.1%Risk-free interest rate1.6%1.9%Expected forfeiture rate61.8%47.1%
fair value of the restricted stock units granted in fiscal 2016 is $5.99 per unit. The Company incurred compensation
expense of $33 thousand and recorded no income tax benefit due to a full valuation allowance.
A summary of the status of restricted stock units as of June 26, 2016, and changes during the fiscal year
then ended is presented below:
As of June 26, 2016, there was $0.2 million of total unrecognized compensation cost related to unvested
restricted stock units granted under the 2015 LTIP, of which $79 thousand is expected to be recognized in each of
fiscal 2017 and fiscal 2018, and $23 thousand is expected to be recognized in fiscal 2019.
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 2016 and, as of June 26, 2016, 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 gross proceeds of $8.0 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 26, 2016, the Company had sold an
aggregate of 825,763 shares in the 2014 ATM Offering, realizing aggregate gross proceeds of $8.1 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 $21,000 and $42,000 in
fiscal 2016 and fiscal 2015, 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.
F 18
Number of Restricted Stock UnitsVested at June 28, 2015 - Granted100,190 Vested- Forfeited20,570 Unvested at June 26, 2016 79,620
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 Company.
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).
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 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.
F 19
June 26,June 28,20162015Loss from continuing operations(8,774)$ (1,671)$ Discontinued operations(112) (168) Net loss available to common stockholders(8,886)$ (1,839)$ BASIC:Weighted average common shares10,3179,744Loss from continuing operations per common share(0.85)$ (0.17)$ Discontinued operations per common share(0.01) (0.02) Net loss per common share(0.86)$ (0.19)$ DILUTED:Weighted average common shares10,3179,744Stock options432562Weighted average common shares outstanding10,74910,306Loss from continuing operations per common share(0.82)$ (0.16)$ Discontinued operations per common share(0.01) (0.02) Net loss per common share(0.83)$ (0.18)$ Fiscal Year Ended
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 26, 2016 and June 28, 2015 (in thousands):
The following table provides information on our foreign and domestic revenues:
F 20