Rave Restaurant Group, Inc.: Form 10-Q for the period ended Mar 29, 2026

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended June 29, 2025, together with our Quarterly Reports on Form 10-Q for the periods ended September 28, and December 28, 2025, may contain certain forward-looking statements that are based on current management expectations. Generally, verbs in the future tense and the words “believe,” “expect,” “anticipate,” “estimate,” “intends,” “opinion,” “potential” and similar expressions identify forward-looking statements. Forward-looking statements in this report include, without limitation, statements relating to our business objectives, our customers and franchisees, our liquidity and capital resources, and the impact of our historical and potential business strategies on our business, financial condition, and operating results. Our actual results could differ materially from our expectations. Further information concerning our business, including additional factors that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, are set forth in our Annual Report on Form 10-K for the year ended June 29, 2025, as well as our Quarterly Report on Form 10-Q for the periods ended September 28, and December 28, 2025. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as may be required by applicable law, we do not undertake, and specifically disclaim any obligation to, publicly update or revise such statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Results of Operations

Overview

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the “Company” or “we,” “us” or “our”), franchises pizza buffet (“Buffet Units”), delivery/carry-out (“Delco Units”), express restaurants (“Express Units”) and ghost kitchens (“Pizza Inn Ghost Kitchen Units”) under the trademark “Pizza Inn” and franchises fast casual pizza restaurants (“Pie Five Units”) and ghost kitchens (“Pie Five Ghost Kitchen Units”) under the trademarks “Pie Five Pizza Company” or “Pie Five”. The Company also licenses Pizza Inn Express, or PIE, kiosks (“PIE Units”). We facilitate food, equipment and supply distribution to our domestic and international system of restaurants through agreements with third-party distributors. At March 29, 2026, franchised and licensed units consisted of the following:

Three Months Ended March 29, 2026

(in thousands, except unit data)

Nine Months Ended March 29, 2026

(in thousands, except unit data)

The domestic units were located in 16 states predominantly situated in the southern half of the United States. The international units were located in five foreign countries.

Non-GAAP Financial Measures and Other Terms

The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”). However, the Company also presents and discusses certain non-GAAP financial measures that it believes are useful to investors as measures of operating performance. Management may also use such non-GAAP financial measures in evaluating the effectiveness of business strategies and for planning and budgeting purposes. However, these non-GAAP financial measures should not be viewed as an alternative or substitute for the results reflected in the Company’s GAAP financial statements.

We consider EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties interested in our industry. We believe that EBITDA is helpful to investors in evaluating our results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. We believe that Adjusted EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. Management also uses these non-GAAP financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes.

The following key performance indicators presented herein, some of which represent non-GAAP financial measures, have these meanings and are calculated as follows:

“EBITDA” represents earnings before interest, taxes, depreciation and amortization.

“Adjusted EBITDA” represents earnings before interest, taxes, depreciation and amortization, stock-based compensation expense, severance, gain/loss on sale of assets, costs related to impairment and other lease charges, franchisee default and closed store revenue/expense, and closed and non-operating store costs.

“Retail sales” represents the restaurant sales reported by our franchisees, which may be segmented by brand or domestic/international locations.

“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 for more than seven days for remodeling or relocation within the same trade area are not included in the calculation.

“Average units open” reflects the number of restaurants open during a reporting period weighted by the percentage of the days in a reporting period that each restaurant was open.

“Franchisee default and closed store revenue/expense” represents the net of accelerated revenues and costs attributable to defaulted area development agreements and closed franchised stores.

“Closed and non-operating store costs” represent gain or loss on asset disposal, store closure expenses, lease termination expenses and expenses related to abandoned store sites.

EBITDA and Adjusted EBITDA

Adjusted EBITDA for the fiscal quarter ended March 29, 2026 increased $0.2 million compared to the same period of the prior fiscal year. Year-to-date Adjusted EBITDA increased $0.3 million compared to the same period of the prior fiscal year. The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods shown (in thousands):

ADJUSTED EBITDA

(In thousands)

17

Pizza Inn Brand Summary

The following tables summarize certain key indicators for the Pizza Inn franchised and licensed domestic units that management believes are useful in evaluating performance:

(in thousands, except unit data)

(in thousands, except unit data)

Pizza Inn total domestic retail sales increased by $1.9 million, or 7.2%, for the three months ended March 29, 2026 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average Buffet Units open in the period increased from 77 to 82. Comparable store retail sales increased by $0.6 million, or 2.3%, for the three month period ended March 29, 2026 as compared to the same period of the prior fiscal year. For the three months ended March 29, 2026, the increase in domestic retail sales were primarily the result of the increase in the average number of Buffet units, supplemented by an increase in comparable domestic store retail sales.

Pizza Inn total domestic retail sales increased by $5.5 million, or 7.1%, for the nine months ended March 29, 2026 when compared to the same period of the prior year. Compared to the same fiscal period of the prior year, average Buffet Units open in the period increased from 78 to 80. Comparable store retail sales increased by $3.3 million, or 4.3%, for the nine month period ended March 29, 2026 as compared to the same period of the prior fiscal year. For the nine months ended March 29, 2026, the increase in domestic retail sales were primarily the result of the increase in the average number of Buffet Units, supplemented by an increase in comparable domestic store retail sales.

The following chart summarizes Pizza Inn restaurant activity for the three and nine months ended March 29, 2026:

18

There was a net increase of zero and one unit in the total domestic Pizza Inn unit count during the three and nine months ended March 29, 2026, respectively. There were one and four units transferred between franchisees in the total domestic Pizza Inn unit count during the three and nine months ended March 29, 2026, respectively. For the three and nine months ended March 29, 2026, the number of international Pizza Inn units decreased by one and four net units, respectively. There were zero transfers in the total international Pizza Inn unit count during the three and nine months ended March 29, 2026. The Company believes the number of both domestic and international Pizza Inn units will increase modestly in future periods.

Pie Five Brand Summary

The following tables summarize certain key indicators for the Pie Five franchised restaurants that management believes are useful in evaluating performance:

(in thousands, except unit data)

(in thousands, except unit data)

Pie Five total domestic retail sales decreased by $0.7 million, or 24.1%, for the three months ended March 29, 2026 when compared to the same period of the prior year. Compared to the same fiscal quarter of the prior year, average units open in the period decreased from 18 to 15. Comparable store retail sales decreased by $0.3 million, or 11.6%, for the three month period ended March 29, 2026 as compared to the same period of the prior fiscal year. For the three months ended March 29, 2026, the decrease in domestic retail sales were primarily the result of the decrease in average store count, supplemented by a decrease in comparable store retail sales.

Pie Five total domestic retail sales decreased by $1.7 million, or 19.7%, for the nine months ended March 29, 2026 when compared to the same period of the prior year. Compared to the same fiscal period of the prior year, average units open in the period decreased from 18 to 16. Comparable store retail sales decreased by $0.6 million, or 7.6%, for the nine month period ended March 29, 2026 as compared to the same period of the prior fiscal year. For the nine months ended March 29, 2026, the decrease in domestic retail sales were primarily the result of the decrease in average store count, supplemented by a decrease in comparable store retail sales.

The following chart summarizes Pie Five restaurant activity for the three and nine months ended March 29, 2026:

There was a net decrease of two and three units in the total domestic Pie Five unit count during the three and nine months ended March 29, 2026. There were zero transfers in the total domestic Pie Five unit count during the three and nine months ended March 29, 2026. We believe that Pie Five units will decrease modestly in future periods.

Financial Results

In addition to Corporate overhead support, the Company defines its operating segments as Pizza Inn Franchising and Pie Five Franchising. The following is additional business segment information for the three and nine months ended March 29, 2026 and March 30, 2025 (in thousands):

Three Months Ended March 29, 2026 and March 30, 2025

20

Nine Months Ended March 29, 2026 and March 30, 2025

Revenues:

Revenues are derived from franchise royalties, supplier and distributor incentive revenues, franchise license fees, area development exclusivity fees and foreign master license fees, advertising fund contributions, supplier convention funds, rental income, and other income. The volume of supplier and distributor incentive revenues is dependent on the level of total retail sales, which are impacted by changes in comparable store sales and restaurant count, as well as the products sold to franchisees through third-party food distributors.

Total revenues for the three month period ended March 29, 2026 and for the same period in the prior fiscal year were $3.2 million and $3.0 million, respectively.

Total revenues for the nine month period ended March 29, 2026 and for the same period in the prior fiscal year were $9.5 million and $8.9 million, respectively.

Pizza Inn Franchise and License

Pizza Inn franchise revenues increased by $0.3 million to $3.0 million for the three month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The 12.2% increase was driven by increases in supplier and distributor incentives and domestic royalties mainly due to an increase in system-wide retail sales. Pizza Inn franchise revenues increased by $0.8 million to $8.8 million for the nine month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The 10.7% increase was driven by increases in supplier and distributor incentives and domestic royalties mainly due to an increase in system-wide retail sales.

Pie Five Franchise and License

Pie Five franchise revenues decreased by $0.1 million to $0.2 million for the three month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The 20.1% decrease was driven by decreases in domestic royalties from lower system-wide retail sales mainly due to unit closures. Pie Five franchise revenues decreased by $0.2 million to $0.7 million for the nine month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The 21.9% decrease was driven by decreases in domestic royalties from lower system-wide retail sales mainly due to unit closures.

Costs and Expenses:

General and Administrative Expenses

Total general and administrative expenses increased by $0.2 million to $1.5 million for the three month period ended March 29, 2026 as compared to the same period of the prior fiscal year. The 11.8% increase was driven by increases in salaries, offset by decreases in legal fees. Total general and administrative expenses increased by $0.3 million to $4.4 million for the nine month period ended March 29, 2026 as compared to the same period of the prior fiscal year. The 7.9% increase was driven by increases in salaries, offset by decreases in legal fees.

Franchise Expenses

Franchise expenses include general and administrative expenses directly related to the sale and continuing service of domestic and international franchises. Total franchise expenses remained relatively stable at $0.7 million for the three month period ended March 29, 2026 as compared to the same period of the prior fiscal year. The 2.7% decrease was driven by decreases in salaries directly related to franchise operations, offset by increases in advertising fees. Total franchise expenses decreased by $0.1 million to $2.5 million for the nine month period ended March 29, 2026 as compared to the same period of the prior fiscal year. The 2.9% decrease was driven by decreases in salaries directly related to franchise operations, offset by increases in advertising fees.

Provision (Recovery) for Credit Losses

The Company monitors franchisee receivable balances and adjusts credit terms when necessary to minimize the Company’s exposure to high-risk accounts receivable. For the three month period ended March 29, 2026, provision for credit losses were $9 thousand compared to recoveries for credit losses of $14 thousand for the same period in the prior fiscal year. For the nine month period ended March 29, 2026, provision for credit losses were $20 thousand compared to recoveries for credit losses of $22 thousand for the same period in the prior fiscal year.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased by $2 thousand to $42 thousand for the three month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The decrease was primarily the result of lower depreciation of equipment. Depreciation and amortization expense decreased by $14 thousand to $126 thousand for the nine month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The decrease was primarily the result of lower depreciation of equipment due to less capital expenditure spend.

Interest Income

Interest income increased by $14 thousand to $98 thousand for the three month period ended March 29, 2026 as compared to the same period in the prior fiscal year and increased by $27 thousand to $280 thousand for the nine month period ended March 29, 2026 as compared to the same period in the prior fiscal year. The increase was primarily driven by interest received on U.S. Treasury bills.

Provision for Income Taxes

Total income tax expense consists of the following (in thousands):

For the three and nine months ended March 29, 2026, the Company recorded an income tax expense of $255 thousand and $666 thousand, respectively. For the three and nine months ended March 30, 2025, the Company recorded an income tax expense of $228 thousand and $541 thousand, respectively. The increase for the three months ended as of March 29, 2026 was driven by increases in federal taxes, primarily due to higher taxable income and fewer discrete tax items related to restricted stock units vesting than in the prior year. The increase for the nine months ended as of March 29, 2026 was primarily driven by increases in federal taxes, primarily due to higher taxable income and fewer discrete tax items related to restricted stock units vesting than in the prior year.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets.

Earnings per Share

Basic net income per share increased $0.01 per share to $0.06 per share for the three months ended March 29, 2026, compared to the comparable period in the prior fiscal year. The Company had net income of $0.8 million for the three months ended March 29, 2026 compared to net income of $0.7 million in the comparable period in the prior fiscal year, on revenues of $3.2 million for the three months ended March 29, 2026 compared to $3.0 million in the comparable period in the prior fiscal year.

Basic net income per share increased $0.02 per share to $0.15 per share for the nine months ended March 29, 2026, compared to the comparable period in the prior fiscal year. The Company had net income of $2.1 million for the nine months ended March 29, 2026 compared to net income of $1.9 million in the comparable period in the prior fiscal year, on revenues of $9.5 million for the nine months ended March 29, 2026 compared to $8.9 million in the comparable period in the prior fiscal year.

Liquidity and Capital Resources

During the nine month period ended March 29, 2026, the Company's primary source of liquidity was proceeds from operating activities.

Cash flows from operating activities generally reflect net income adjusted for certain non-cash items including depreciation and amortization, changes in deferred taxes, stock-based compensation, and changes in working capital. Cash provided by operating activities was $2.1 million for the nine month period ended March 29, 2026 compared to cash provided by operating activities of $2.2 million for the nine month period ended March 30, 2025. The primary driver of decreased operating cash flow during the nine month period ended March 29, 2026 was increased accounts receivable due to the timing of payments.

Cash flows from investing activities reflect purchases and maturities of short-term investments as well as net proceeds from the sale of assets and capital expenditures for the purchase of Company assets. Cash used in investing activities during the nine month period ended March 29, 2026 was $3.8 million compared to cash used in investing activities of $3.0 million for the nine month period ended March 30, 2025. Net cash used in investing activities during the nine month period ended March 29, 2026 was primarily attributable to increased purchases of U.S. Treasury bills.

Cash flows used in financing activities generally reflect changes in the Company's stock and debt activity during the period. Net cash used in financing activities was zero for the nine month period ended March 29, 2026 compared to net cash used in financing activities of $1.4 million for the nine month period ended March 30, 2025. Net cash used by financing activities for the nine month period ended March 30, 2025 was primarily attributable to repurchases of the Company's stock.

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed periodically. Actual results could differ materially from estimates.

The Company believes the following critical accounting policies require estimates about the effect of matters that are inherently uncertain, are susceptible to change, and therefore require subjective judgments. Changes in the estimates and judgments could significantly impact the Company’s results of operations and financial condition in future periods.

Accounts receivable consist primarily of receivables generated from franchise royalties and supplier concessions. The Company records an allowance for credit losses to allow for any amounts which may be unrecoverable based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Actual realization of accounts receivable could differ materially from the Company’s estimates.

The Company reviews long-lived assets for impairment when events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use and eventual disposition of the assets compared to their carrying value. If impairment is indicated, the carrying value of an impaired asset is reduced to its fair value, based on discounted estimated future cash flows.

Franchise revenue consists of income from license fees, royalties, area development and foreign master license agreements, advertising fund revenues, supplier incentive and convention contribution revenues. Franchise fees, area development and foreign master license agreement fees are amortized into revenue on a straight-line basis over the term of the related contract agreement. In event of a closed franchise or defaulted development agreement, the remaining balance of unamortized license fees will be recognized in entirety as of the date of the closure or default. Royalties and advertising fund revenues, which are based on a percentage of franchise retail sales, are recognized as income as retail sales occur. Supplier incentive revenues are recognized as earned, typically as the underlying commodities are shipped.

The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight is given to evidence that can be objectively verified, including recent operating performance.

The Company accounts for uncertain tax positions in accordance with ASC 740-10, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return. ASC 740-10 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of March 29, 2026 and June 29, 2025, 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.

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

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