RAVE RESTAURANT GROUP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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The following discussion should be read in conjunction with the consolidated
financial statements and accompanying notes appearing elsewhere in this
Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year
ended June 27, 2021 and may contain certain forward-looking statements that are
based on current management expectations. Generally, verbs in the future tense
and the words "believe," "expect," "anticipate," "estimate," "intends,"
"opinion," "potential" and similar expressions identify forward-looking
statements. Forward-looking statements in this report include, without
limitation, statements relating to our business objectives, our customers and
franchisees, our liquidity and capital resources, and the impact of our
historical and potential business strategies on our business, financial
condition, and operating results. Our actual results could differ materially
from our expectations. Further information concerning our business, including
additional factors that could cause actual results to differ materially from the
forward-looking statements contained in this Quarterly Report on Form 10-Q, are
set forth in our Annual Report on Form 10-K for the year ended June 27, 2021.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. The
forward-looking statements contained herein speak only as of the date of this
Quarterly Report on Form 10-Q and, except as may be required by applicable law,
we do not undertake, and specifically disclaim any obligation to, publicly
update or revise such statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

                             Results of Operations
Overview

Rave Restaurant Group, Inc., through its subsidiaries (collectively, the
"Company" or "we," "us" or "our") franchises pizza buffet ("Buffet Units"),
delivery/carry-out ("Delco Units") and express ("Express Units") restaurants
under the trademark "Pizza Inn" and franchises fast casual pizza restaurants
("Pie Five Units") under the trademarks "Pie Five Pizza Company" or "Pie Five".
The Company also licenses Pizza Inn Express, or PIE, kiosks ("PIE Units") under
the trademark "Pizza Inn". We facilitate food, equipment and supply distribution
to our domestic and international system of restaurants through agreements with
third party distributors. At March 27, 2022, franchised and licensed units
consisted of the following:

Three Months Ended March 27, 2022
(in thousands, except unit data)

                               Pizza Inn                     Pie Five                   All Concepts
                          Ending        Retail         Ending        Retail         Ending        Retail
                          Units          Sales         Units          Sales         Units          Sales
Domestic
Franchised/Licensed            128     $  22,228             33     $   4,870            161     $  27,098

International
Franchised                      31                            -                           31



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Nine Months Ended March 27, 2022
(in thousands, except unit data)

                               Pizza Inn                     Pie Five                   All Concepts
                          Ending        Retail         Ending        Retail         Ending        Retail
                          Units          Sales         Units          Sales         Units          Sales
Domestic
Franchised/Licensed            128     $  63,590             33     $  14,907            161     $  78,497

International
Franchised                      31                            -                           31


Domestic units are located in 18 states mostly located in the southern half of United States. The international units are located in six foreign countries.


Basic net income per share increased $0.01 per share to $0.03 per share for the
three months ended March 27, 2022, compared to the comparable period in the
prior fiscal year. The Company had net income of $0.5 million for the three
months ended March 27, 2022 compared to net income of $0.4 million in the
comparable period in the prior fiscal year, on revenues of $2.6 million for the
three months ended March 27, 2022 compared to $2.2 million in the comparable
period in the prior fiscal year. The increase in revenue was primarily due to
increases in franchise royalties, supplier and distributer incentives, and
advertising fund contributions. The $0.1 million increase in net income for the
three months ended March 27, 2022, compared to the comparable period of the
prior year was primarily the result of the $0.4 million increase in revenues
partially offset by a $0.3 million increase in expenses.

Basic net income per share increased $0.04 per share to $0.07 per share for the
nine months ended March 27, 2022, compared to the comparable period in the prior
fiscal year. The Company had net income of $1.2 million for the nine months
ended March 27, 2022 compared to net income of $0.6 million in the comparable
period in the prior fiscal year, on revenues of $7.9 million for the nine months
ended March 27, 2022 compared to $6.2 million in the comparable period in the
prior fiscal year. The increase in revenue was primarily due to increases in
franchise royalties, supplier and distribution incentives, and advertising fund
contributions. The $0.6 million increase in net income for the nine months
ended March 27, 2022 compared to the comparable period of the prior year was
primarily the result of the $1.7 million increase in revenues partially offset
by a $1.1 million increase in expenses.

Covid-19 pandemic


On March 11, 2020, the World Health Organization declared the outbreak of novel
coronavirus (COVID-19) as a pandemic, and the disease has spread rapidly
throughout the United States and the world. Federal, state and local responses
to the COVID-19 pandemic, as well as our internal efforts to protect customers,
franchisees and employees, have severely disrupted our business operations. Most
of the domestic Pizza Inn buffet restaurants and Pie Five restaurants are in
areas that were for varying periods subject to "shelter-in-place" and social
distancing restrictions prohibiting in-store sales and, therefore, were limited
to carry-out and/or delivery orders. In some areas, these restrictions limited
non-essential movement outside the home, which discouraged or even precluded
carry-out orders. In most cases, in-store dining has now resumed subject to
seating capacity limitations, social distancing protocols, and enhanced cleaning
and disinfecting practices. Further, the COVID-19 pandemic precipitated
significant job losses and a national economic downturn that impacted the demand
for restaurant food service. Although most of the Company's domestic restaurants
continued to operate under these conditions, the Company experienced temporary
closures from time to time during the pandemic.

The COVID-19 pandemic has resulted in dramatically reduced aggregate in-store
retail sales at Buffet Units and Pie Five Units, modestly offset by increased
aggregate carry-out and delivery sales. The decreased aggregate retail sales
have correspondingly decreased supplier rebates and franchise royalties payable
to the Company. During the fourth quarter of fiscal 2020, we participated in a
government-sponsored loan program. (See, "Liquidity and Capital Resources--PPP
Loan," below.) The Company also temporarily furloughed certain employees and
reduced base salary by 20% for all remaining employees for the fourth quarter of
fiscal 2020, as well as reducing other expenses. While the Company will remain
focused on controlling expenses, future results of operations are likely to be
materially adversely impacted by the pandemic and its aftermath.

Although the impact of COVID-19 has moderated during fiscal 2022, the Company
expects that Buffet Units and Pie Five Units in many areas will continue to be
subject to capacity restrictions for some time as social distancing protocols
remain in place. Additionally, an outbreak or perceived outbreak of COVID-19
connected to restaurant dining could cause negative publicity directed at any of
our brands and cause customers to avoid our restaurants. We cannot predict how
long the pandemic will last or whether it will reoccur, what additional
restrictions may be enacted, to what extent off-premises dining will continue,
or if individuals will be comfortable returning to our Buffet Units and Pie Five
Units following social distancing protocols. Any of these changes could
materially adversely affect the Company's future financial performance.
However, the ultimate impact of COVID-19 on the Company's future results of
operations and liquidity cannot presently be predicted.

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Non-GAAP Financial Measures and Other Terms


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

The Company considers 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 the Company's industry. The Company
believes that EBITDA is helpful to investors in evaluating the Company's results
of operations without the impact of expenses affected by financing methods,
accounting methods and the tax environment. The Company believes 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. The Company believes
that restaurant operating cash flow is a useful metric to investors in
evaluating the ongoing operating performance of Company-owned restaurants and
comparing such store operating performance 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 the meaning and are calculated as follows:

? “EBITDA” represents earnings before interest, taxes, amortization and

amortization.

? “Adjusted EBITDA” represents earnings before interest, taxes, amortization and

amortization, stock compensation expense, severance pay, gain/loss on sale of

assets, costs related to depreciation and other rental charges, franchisee default

and closed store revenues/expenses, and closed and non-operating store costs.

? “Retail Sales” represents restaurant sales reported by our franchisees and

Company-owned restaurants, which can be segmented by brand or

national/international sites.

? “System-wide retail sales” represent the combined retail sales for the franchisee and

Company-owned restaurants for a specific brand.

? “Comparable store retail sales” include restaurant retail sales which

have been open for at least 18 months at the end of the reporting period.

The results of the sale of a restaurant temporarily closed for renovation

or relocation within the same catchment area are included in the calculation only

for the days the restaurant was open in the two periods compared.

? “Store weeks” represents the total number of full weeks that specified

restaurants were open during the period.

? “Average units open” reflects the number of restaurants open during a report

period weighted by the percentage of weeks in a reporting period that each

the restaurant was open.

? “Average weekly sales” for a specified period is calculated as total retail sales

sales (excluding partial weeks) divided by store weeks in the period.

? The “restaurant operating cash flow” represents the pre-tax income generated by

Company-owned restaurants before (1) allocated marketing and advertising

expenses, (2) impairment and other rental expenses, and (3) non-operating stores

costs.

? “Non-operating store costs” represent the gain or loss on the disposal of assets, the store

closing costs, lease termination costs and costs related to

store websites.

? “Franchisee Default and Closed Store Revenue/Expenses” represents the net amount of

accelerated revenues and costs attributable to the development of the default area

agreements and closed franchise stores.

EBITDA and Adjusted EBITDA


Adjusted EBITDA for the fiscal quarter ended March 27, 2022 increased $0.2
million compared to the same period of the prior fiscal year. Year-to-date
Adjusted EBITDA increased $0.8 million compared to the same 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):

                          RAVE RESTAURANT GROUP, INC.
                           EBITDA and ADJUSTED EBITDA
                                 (In thousands)

                                                Three Months Ended               Nine Months Ended
                                            March 27,        March 28,      March 27,        March 28,
                                              2022              2021           2022            2021
Net income                                 $       493       $      416     $    1,235      $       594
Interest expense                                    14               23             61               69
Income tax expense                                   3                1             10                5
Depreciation and amortization                       46               41            138              128
EBITDA                                     $       556       $      481     $    1,444      $       796
Stock compensation expense                          42               39            127               39
Severance                                            -                -             33                -
Gain on sale of assets                               -             (156 )            -             (156 )
Impairment of long-lived assets and
other lease charges                                  -                -              -               21
Franchisee default and closed store
revenue                                             (9 )            (43 )          (21 )           (154 )
Closed and non-operating store costs                 1               77              3              235
Adjusted EBITDA                            $       590       $      398     $    1,586      $       781



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Summary of the Pizza Inn brand


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

                                                           Three Months Ended                             Nine Months Ended
                                                   March 27,               March 28,             March 27,               March 28,
                                                      2022                    2021                  2022                    2021

Pizza Inn Retail Sales – Total domestic units (in thousands, except unit data)

              (in thousands, except unit data)
Domestic Units
Buffet Units - Franchised                       $         20,676       $           16,042     $         58,754       $           45,057
Delco/Express Units - Franchised                           1,494                    1,393                4,660                    4,339
PIE Units - Licensed                                          58                       68                  176                      183
Total Domestic Retail Sales                     $         22,228       $           17,503     $         63,590       $           49,579

Pizza Inn Comparable Store Retail Sales -
Total Domestic                                  $         20,845       $           16,976     $         60,877       $           47,045

Pizza Inn Average Units Open in Period
Domestic Units
Buffet Units - Franchised                                     70                       75                   71                       78
Delco/Express Units - Franchised                              49                       54                   51                       55
PIE Units - Licensed                                           9                       11                   10                       12
Total Domestic Units                                         128                      140                  132                      145



Total Pizza Inn domestic retail sales increased $4.7 million, or 27.0%, for the
three months ended March 27, 2022 when compared to the same period of the prior
year. Pizza Inn domestic comparable store retail sales increased by $3.9
million, or 22.8%, for the three months ended March 27, 2022 when compared to
the same period of the prior year. Total Pizza Inn domestic retail sales
increased $14.0 million, or 28.3%, for the nine months ended March 27, 2022 when
compared to the same period of the prior year. Pizza Inn domestic comparable
store retail sales increased by $13.8 million, or 29.4%, for the nine months
ended March 27, 2022 when compared to the same period of the prior year. For
both the three and nine months ended March 27, 2022, the improvements in
domestic retail sales and comparable store retail sales were primarily the
result of a moderation in the impact of COVID-19.

The following chart summarizes Pizza Inn unit activity for the three and nine
months ended March 27, 2022:

                                                          Three Months Ended March 27, 2022
                                    Beginning                            Concept                          Ending
                                      Units            Opened             Change          Closed          Units
Domestic Units
Buffet Units - Franchised                   70                 1                  1               1             71
Delco/Express Units - Franchised            49                 1                 (1 )             1             48
PIE Units - Licensed                         9                 -                  -               -              9
Total Domestic Units                       128                 2                  -               2            128

International Units (all types)             33                 1                  -               3             31

Total Units                                161                 3                  -               5            159



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                                                         Nine Months Ended March 27, 2022
                                    Beginning                            Concept                        Ending
                                      Units            Opened            Change          Closed         Units
Domestic Units
Buffet Units - Franchised                   70                 3                 1              3             71
Delco/Express Units - Franchised            54                 1                (1 )            6             48
PIE Units - Licensed                        11                 -                 -              2              9
Total Domestic Units                       135                 4                 -             11            128

International Units (all types)             32                 2                 -              3             31

Total Units                                167                 6                 -             14            159



The domestic Pizza Inn units remained stable during the three months ended March
27, 2022. There was a net decrease of seven units in the total domestic Pizza
Inn unit count during the nine months ended March 27, 2022. For the three and
nine months ended March 27, 2022, the number of international Pizza Inn units
decreased by two units and one unit, respectively. The Company believes the
number of domestic Pizza Inn units will stabilize in the near term and increase
modestly in future periods. The Company expects international units to increase
moderately in future periods.

Summary of the Pie Five brand


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

                                                           Three Months Ended                            Nine Months Ended
                                                    March 27,              March 28,            March 27,               March 28,
                                                      2022                    2021                 2022                    2021
                                                    (in thousands, except unit data)             (in thousands, except unit data)
Pie Five Retail Sales - Total Units
Domestic Units - Franchised                      $         4,870        $          4,074     $         14,907       $           12,913
Domestic Units - Company-owned                                 -                       -                    -                        -
Total Domestic Retail Sales                      $         4,870        $          4,074     $         14,907       $           12,913

Pie Five Same Store Retail Sales – Total $4,519

        3,722     $         13,884       $           11,848

Pie Five Average Units Open in Period
Domestic Units - Franchised                                   34                      36                   33                       39
Domestic Units - Company-owned                                 -                       -                    -                        -
Total Domestic Units                                          34                      36                   33                       39



Pie Five system-wide retail sales increased $0.8 million, or 19.5%, for the
three months ended March 27, 2022 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 36 to 34. Comparable store retail sales increased
$0.8 million, or 21.4%, during the third quarter of fiscal 2022 compared to the
same period of the prior year. Pie Five system-wide retail sales increased $2.0
million, or 15.4%, for the nine month period ended March 27, 2022 when compared
to the same period of the prior year. Year-to-date fiscal 2022 compared to
year-to-date of the prior year, average units open in the period decreased from
39 to 33. Comparable store retail sales increased $2.0 million, or 17.2%, during
the nine month period ended March 27, 2022 compared to the same period of the
prior fiscal year. For both the three and nine months ended March 27, 2022, the
improvements in domestic retail sales and comparable store retail sales were
primarily the result of a moderation in the impact of COVID-19.

The following chart summarizes Pie Five Unit activity for the three and nine
months ended March 27, 2022:

                                           Three Months Ended March 27, 2022
                           Beginning                                                  Ending
                             Units          Opened        Transfer        Closed       Units

Domestic - Franchised              34             1               -             2          33
Domestic - Company-owned            -             -               -             -           -
Total Domestic Units               34             1               -             2          33



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                                           Nine Months Ended March 27, 2022
                           Beginning                                                 Ending
                             Units          Opened        Transfer       Closed       Units

Domestic - Franchised              33             2               -            2          33
Domestic - Company-owned            -             -               -            -           -
Total Domestic Units               33             2               -            2          33


There was a net decrease of one Pie Five unit in the three months ended
March 27, 2022. Shares of Pie Five have remained stable in the nine months ended March 27, 2022. The Company believes that the number of Pie Five units will stabilize in the short term and increase slightly in future periods.

Company-owned restaurants


The Company closed its single remaining Company-owned Pie Five restaurant during
the third quarter of fiscal 2020. Loss from continuing operations before taxes
for the Company-owned Pie Five stores decreased $76 thousand for the three
months ended March 27, 2022 to $1 thousand compared to $77 thousand during the
same period of the prior year. Loss from continuing operations before taxes for
the Company-owned Pie Five stores decreased $253 thousand for the nine months
ended March 27, 2022 to $3 thousand compared to $256 thousand during the same
period of the prior year. The decreased loss was the result of the closure of
all remaining Company-owned restaurants. Our long-term strategy is expected to
include Company-owned stores.

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Financial results


The Company defines its operating segments as Pizza Inn Franchising, Pie Five
Franchising and Company-Owned Restaurants. The following is additional business
segment information for the three and nine months ended March 27, 2022 and March
28, 2021 (in thousands):

Three months completed March 27, 2022 and March 28, 2021

                                          Pizza Inn                          Pie Five                          Company-Owned
                                         Franchising                       Franchising                          Restaurants                          Corporate                           Total
                                    Fiscal Quarter Ended               Fiscal Quarter Ended                 Fiscal Quarter Ended                Fiscal Quarter Ended             Fiscal Quarter Ended
                                 March 27,         March 28,       March 27,          March 28,       March 27,              March 28,       March 27,        March 28,       March 27,         March 28,
                                   2022              2021             2022              2021             2022                  2021            2022    
        2021            2022              2021
REVENUES:
Franchise and license
revenues                        $     2,091       $     1,714     $        482       $       418     $          -           $         -     $        

-$- $2,573 $2,132
Catering sales

                          -                 -                -                 -                -                     -               -                -               -                 -
Rental income                             -                 -                -                 -                -                     -              47               51              47                51
Interest income and other                 -                 -                -                 -                -                     -               -                -               -                 -
Total revenues                        2,091             1,714              482               418                -                     -              47               51           2,620             2,183

COSTS AND EXPENSES:
Cost of sales                             -                 -                -                 -                1                    76               -                -               1                76
General and administrative
expenses                                  -                 -                -                 -                -                     1           1,357            1,249           1,357             1,250
Franchise expenses                      443               375              262               254                -                     -               -                -             705               629
Gain on sale of assets                    -                 -                -                 -                -                     -               -             (156 )             -              (156 )
Impairment of long-lived
assets
and other lease charges                   -                 -                -                 -                -                     -               -                -               -                 -
Bad debt  expense (recovery)              -                 -                -                 -                -                     -               1              (97 )             1               (97 )
Interest expense                          -                 -                -                 -                -                     -              14               23              14                23
Depreciation and amortization
expense                                   -                 -                -                 -                -                     -              46               41              46                41
Total costs and expenses                443               375              262               254                1                    77           1,418            1,060           2,124             1,766

PROFIT/(LOSS) BEFORE TAX $1,648 $1,339 $220 $164 $ (1 ) $ (77 ) ($1,371) $(1,009) $496 $417




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Nine month period ended March 27, 2022 and March 28, 2021

                                         Pizza Inn                         Pie Five                        Company-Owned
                                        Franchising                      Franchising                          Stores                           Corporate                         Total
                                    Fiscal Year-to-Date              Fiscal Year-to-Date                Fiscal Year-to-Date               Fiscal Year-to-Date             Fiscal Year-to-Date
                                March 27,         March 28,      March 27,         March 28,       March 27,           March 28,       March 27,      

March 28, March 27, March 28,

                                   2022             2021            2022             2021             2022               2021            2022            2021            2022             2021
REVENUES:
Franchise and license
revenues                        $    6,279       $     4,718     $    1,433       $     1,336     $          -        $         -     $         -     $         -     $    7,712       $     6,054
Restaurant sales                         -                 -              -                 -                -                  -               -               -              -                 -
Rental Income                            -                 -              -                 -                -                  -             140             151            140               151
Interest income and other                -                 -             17                14                -                  -               -              (5 )           17                 9
Total revenues                       6,279             4,718          1,450             1,350                -                  -             140             146          7,869             6,214

COSTS AND EXPENSES:
Cost of sales                            -                 -              -                 -                1                229               -               -              1               229
General and administrative
expenses                                 -                 -              -                 -                2                  6           3,938           3,518          3,940             3,524
Franchise expenses                   1,773               995            702               787                -                  -               -               -          2,475             1,782
Gain on sale of assets                   -                 -              -                 -                -                  -               -            (156 )            -              (156 )
Impairment of long-lived
assets and other lease
charges                                  -                 -              -                 -                -                 21               -               -              -                21
Bad debt  expense  (recovery)            -                 -              -                 -                -                  -               9              18              9                18
Interest expense                         -                 -              -                 -                -                  -              61              69             61                69
Depreciation and amortization
expense                                  -                 -              -                 -                -                  -             138             128            138               128
Total costs and expenses             1,773               995            702               787                3                256           4,146           3,577          6,624             5,615

INCOME/(LOSS) BEFORE TAXES      $    4,506       $     3,723     $      748       $       563     $         (3 )      $      (256 )   $    (4,006 )   $    (3,431 )   $    1,245       $       599



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Income:


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

Total revenues for the three month period ended March 27, 2022 and for the same
period in the prior fiscal year were $2.6 million and $2.2 million,
respectively. The increase in total revenues was driven by increases in Pizza
Inn and Pie Five franchise and license revenues.

Total revenues for the nine month period ended March 27, 2022 and for the same
period in the prior fiscal year were $7.9 million and $6.2 million,
respectively. The increase in total revenues was driven by increases in Pizza
Inn and Pie Five franchise and license revenues.

Pizza Inn Franchise Revenue


Pizza Inn franchise and license revenues increased by $0.4 million to $2.1
million for the three month period ended March 27, 2022 compared to the same
period of the prior year. Pizza Inn franchise and license revenues increased to
$6.3 million for the nine month period ended March 27, 2022 from $4.7 million
for the same period of the prior fiscal year. The increases were primarily
driven by increases in supplier incentives and domestic royalties revenues.

Pie Five Franchise Revenue


Pie Five franchise and license revenues increased by $0.1 million to $0.5
million for the three month period ended March 27, 2022 compared to the same
period of the prior fiscal year. Pie Five franchise and license revenues
increased to $1.4 million for the nine month period ended March 27, 2022
compared to $1.3 million for the same period in the prior fiscal year. The
increases were primarily driven by increases in supplier incentives and domestic
royalties revenues.

Costs and Expenses:

Cost of Sales - Total

Total cost of sales, which primarily includes food and supply costs, labor, and
general and administrative expenses directly related to Company-owned restaurant
sales, decreased to $1 thousand for the three and nine month period ended March
27, 2022 as a result of the closure of all of the remaining Company-owned
restaurants during the third quarter of fiscal 2020.

General and administrative expenses


Total general and administrative expenses increased $0.1 million to $1.4 million
for the three month period ended March 27, 2022 compared to $1.3 million for the
same period of the prior fiscal year. Total general and administrative expenses
increased to $3.9 million for the nine month period ended March 27, 2022
compared to $3.5 million for the nine month period ended March 28, 2021. The
increases in general and administrative expenses during both the three and nine
month periods were primarily the result of increased corporate expenses.

Franchise fees


Franchise expenses include general and administrative expenses directly related
to the continuing service of domestic and international franchises. Franchise
expenses increased to $0.7 million for the three month period ended March 27,
2022 compared to $0.6 million for the same period of the prior fiscal year.
Franchise expenses increased to $2.5 million for the nine month period ended
March 27, 2022 compared to $1.8 million for the nine month period ended March
28, 2021. In both cases, the increases were primarily due to an increase in
advertising expenses.

Gain on sale of assets

Gain on sale of assets fell to nil for the three and nine month periods ended
March 27, 2022 compared to a gain of $156,000 during the comparable periods of the previous year.

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Depreciation of long-lived assets and other rental costs


Impairment of long-lived assets and other lease charges was zero for both the
three month period ended March 27, 2022 and the comparable period in the prior
fiscal year. Impairment of long-lived assets and other lease charges was zero
for the nine month period ended March 27, 2022 compared to $21 thousand for the
same period of the prior fiscal year. For the three and nine month periods ended
March 27, 2022, there were no charges related to lease termination expenses.

Bad Debt Expenses


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 27, 2022, bad debt expense
was $1 thousand compared to the bad debt recovery of $97 thousand for the same
period in the prior fiscal year. Bad debt expense for the nine month period
ended March 27, 2022, decreased $9 thousand to $9 thousand compared to the
comparable period in the prior fiscal year.

Interest charges


Interest expense decreased $9 thousand to $14 thousand for the three month
period ended March 27, 2022 compared to the same fiscal period of the prior
year. Interest expense decreased $8 thousand to $61 thousand for the nine month
period ended March 27, 2022 compared to the same fiscal period of the prior
year. In both cases, the decrease was primarily the result of the payment of all
outstanding convertible notes during the third quarter of fiscal 2022.

Depreciation expense


Depreciation and amortization expense increased slightly for the three and nine
months ended March 27, 2022, compared to the same periods of the prior year.  In
both cases, the increase was primarily the result of increases in corporate
equipment depreciation.

Provision for income tax

For the three and nine months ended March 27, 2022the Company recorded an income tax expense of $3,000 and $10,000, respectively, all of which is attributable to current state taxes. The Company used net operating losses to offset federal income taxes.


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. Future sources of taxable income are also considered in
determining the amount of the recorded valuation allowance. As of March 27,
2022, the Company had established a full valuation allowance of $6.1 million
against its deferred tax assets. The Company will continue to review the need
for an adjustment to the valuation allowance.

                        Liquidity and Capital Resources

During the nine-month period ended March 27, 2022the Company’s primary source of liquidity was revenue from operations.


Cash flows from operating activities generally reflect net income or losses
adjusted for certain non-cash items including depreciation and amortization,
changes in deferred tax assets, share based compensation, and changes in working
capital. Cash provided by operating activities was $525 thousand for the nine
month period ended March 27, 2022 compared to cash used of $357 thousand for the
nine month period ended March 28, 2021. The primary driver of increased
operating cash flow during the nine month period ended March 27, 2022 was
increased net income.

Cash flows from investing activities reflect net proceeds from the sale of
assets and capital expenditures for the purchase of Company assets. Cash
provided by investing activities during the nine month period ended March 27,
2022 was $169 thousand, attributable to payments received on notes receivable
from fixed asset sales of $240 thousand being partially offset by the purchase
of definite-lived intangible assets of $46 thousand and the purchase of
property, plant, and equipment of $25 thousand. Cash flows provided by investing
activities were $11 thousand for the nine months ended March 28, 2021.

Cash flows from financing activities generally reflect changes in the Company's
stock and debt activity during the period. Net cash used by financing activities
was $1.8 million for the nine month period ended March 27, 2022 compared to net
cash provided by financing activities of $3.6 million for the nine month period
ended March 28, 2021. Net cash used by financing activities for the nine months
ended March 27, 2022 was primarily attributable to the payment of all
outstanding convertible notes during the third quarter of fiscal 2022.

                                       23

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Hint


As a result of the COVID-19 pandemic, the Company has taken aggressive measures
to control expenses and expects modest cash flow from operations during the
fourth quarter of fiscal 2022. However, management believes the cash on hand
combined with net cash provided by operations will be sufficient to fund
operations for the next 12 months.

ATM offer 2017


On December 5, 2017, the Company entered into an At Market Issuance Sales
Agreement with B. Riley FBR, Inc. ("B. Riley FBR") pursuant to which the Company
could offer and sell shares of its common stock having an aggregate offering
price of up to $5,000,000 from time to time through B. Riley FBR acting as agent
(the "2017 ATM Offering"). The 2017 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 November 6, 2017. Through November 6, 2020, the Company had sold
an aggregate of 3,064,342 shares in the 2017 ATM Offering, realizing aggregate
gross proceeds of $4.5 million. The 2017 ATM Offering expired on November 6,
2020.

Convertible Notes

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

The Notes bore interest at the rate of 4% per annum on the principal or par
value of $100 per note, payable annually in arrears on February 15 of each year,
commencing February 15, 2018. Interest was payable in cash or, at the Company's
discretion, in shares of Company common stock. The Notes were secured by a
pledge of all outstanding equity securities of our two primary direct operating
subsidiaries. During the nine month period ended March 27, 2022, no Notes were
converted to common shares. The Notes matured on February 15, 2022, at which
time all principal and unpaid interest was paid in cash. As of March 27, 2022,
there were no Notes outstanding.

PPP loan


On April 13, 2020, the Company received the proceeds from a loan in the amount
of $0.7 million (the "PPP Loan") from JPMorgan Chase Bank, N.A. pursuant to the
Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act") administered by the U.S. Small Business
Administration ("SBA"). The PPP Loan was unsecured by the Company and was
guaranteed by the SBA. We applied for and received a forgiveness decision in the
fourth quarter of fiscal 2021, such that all of the PPP Loan was forgiven at
that time.

                   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 the Company's
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 incentives. The Company records a provision for doubtful
receivables to allow for any amounts which may be unrecoverable based upon an
analysis of the Company's prior collection experience, customer creditworthiness
and current economic trends. Actual realization of accounts receivable could
differ materially from the Company's estimates.

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

Franchise revenue consists of income from license fees, royalties, area
development and foreign master license agreements, advertising fund revenues,
supplier incentive and convention contribution revenues. Franchise fees, area
development and foreign master license agreement fees are amortized into revenue
on a straight-line basis over the term of the related contract agreement.
Royalties and advertising fund revenues, which are based on a percentage of
franchise retail sales, are recognized as income as retail sales occur. Supplier
incentive revenues are recognized as earned, typically as the underlying
commodities are shipped.

                                       24

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Hint


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 losses. Future sources of taxable income are also considered in
determining the amount of the recorded valuation allowance.

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 27, 2022 and March 28, 2021, 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.

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