Good day and welcome to the RAVE Restaurant Group, Inc. Third Quarter 2020 Financial Results. [Operator Instructions] Please note, this event is being recorded. And I would now like to turn the conference over to Clint Fendley, Vice President of Finance. Please go ahead.

Good afternoon and thank you for joining RAVE Restaurant Group's Fiscal Third Quarter 2020 Earnings Conference Call. Everyone should have access to our third quarter 2020 earnings release that was published this morning. The press release can be found at www.raverg.com in the Investor Relations section. Before we begin, I would like to remind everyone that part of our discussions today will include some forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Please note that during today's conference call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. Any discussion of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of comparable GAAP measures is available in our earnings release. And with that, I would like to introduce our Chief Executive Officer, Brandon Solano.

Thank you, Clint. And good afternoon, everyone. Just so you know, that was Clint Fendley. He's our new Vice President of Finance and Principal Financial Officer. He's a new voice, and you haven't heard him before. Clint is a talent. We're lucky to have him. And he has absolutely been working his ass off for our company, for our shareholders and for our franchisees since the day he landed here. And we're absolutely lucky to have him. So thank you, Clint. In our last quarterly review, I shared the progress RAVE was making in developing a turnaround strategy for both Pie Five and Pizza Inn. At the beginning of the third quarter, we are working with our leadership team to implement improvements in a long-term plan for underperforming areas of our business. All that changed in March as our team worked to mitigate the challenges brought on by COVID-19 and related closures and shelter-in-place orders. Just as we were starting to gain traction in our mission of developing a sustainable and thriving business model, we faced a new threat to our business. Business is about overcoming obstacles, and this is about the biggest obstacle we've seen in the country for quite some time. But the U.S. consumer is resilient. After 9/11, people said the airline industry would never recover, but before the pandemic, domestic flights were at an all-time high. The restaurant industry will recover, and so will RAVE. It's been inspiring to see the tenacity of our franchisees and team members as we navigate this new landscape. As a team, we've all worked tirelessly to ensure that our restaurants remain a safe place to work and dine during the coronavirus outbreak. Our team is committed to raise financial stability, and we have all made sacrifices to ensure we emerge…

Thank you, Brandon. Total revenue decreased by $0.4 million to $2.7 million for the third quarter of fiscal 2020 compared to the same period of the prior year. Loss before taxes was $0.5 million for the third quarter of fiscal 2020 compared to a $0.3 million loss for the same period of the prior year. The company recorded net loss of $4.5 million for the third quarter of fiscal 2020 compared to a net loss of $0.3 million for the same period of the prior year primarily due to a $4.3 million increase against the reserve for net deferred assets and lease impairment charges. The company's net loss per share increased $0.28 per share to $0.30 per share for the third quarter of fiscal 2020 compared to $0.02 per share for the same period of the prior year. Adjusted EBITDA for the third quarter of fiscal 2020 decreased $0.2 million from the same period of the prior year. During the third quarter of fiscal 2020, Pizza Inn opened 3 domestic units and closed 4 units to finish the quarter at 152 domestic units. Pie Five closed 10 domestic units, bringing the domestic unit count to 43 restaurants at the end of the third quarter of fiscal 2020. The company's cash and cash equivalents decreased $0.4 million during the third quarter of fiscal 2020 to $1.5 million at March 29, 2020. The decrease in cash and cash equivalents resulted from payments for lease settlements, severance and relocation expenses. With that, let's open the line for questions.

[Operator Instructions] Our first question today will come from [ John Priscilla ], private investor.

Brandon, Clint, my name is John. I've been a long-time private shareholder for quite a while. And I guess I sort of really want to ask the question -- it just seems at some point, the company needs to get to the point where it really decides that one or the other of the brands that you're pursuing might be good to jettison so that you can focus 100% of your resources. Clearly, one of the reasons why I started investing in the first place was back at the launch of the Pie Five, and that has clearly not worked out sort of as anybody expected. And that's fine, things happen. I understand that. But it seems that the progress you're having lately or certainly in the last year or so has been much more to do on the Pizza Inn side. And I'm just really wondering if it's time to really think about jettisoning Pie Five perhaps and refocus based on the resources that are available. And that's my -- really my main question for you.

John, this is Brandon. Thanks for your question. And thanks for being a long-term investor. We appreciate it. Clint and I have not been here for a long time. Clint's been here about 6 months. And it's obviously been 3 months of trying to figure out kind of the ins and outs of the business. And then the last 3 have been a lot of crisis management for us. So I appreciate your long-term investing. I will tell you, I don't -- I've been asked that question by our franchisees by both Pie Five and Pizza Inn franchisees. We have absolutely no intention of giving up on Pie Five, and I think that was really your question. It wasn't, "Hey, would you give up on Pizza Inn?" And both are challenged, but that said, we are turnaround folks. We have a long history of turning around brands, and we love a challenge. And this business is not for the faint of heart. We have built a very, very rugged team that love -- there's something wrong with us, to be honest. We love a challenge. We are not quitters. And I will tell you, it's more than that. It's more than just hubris or bravado. We believe in the Pie Five brand. I believe in our franchisees. We've got folks who are absolutely coming along. The idea that this is a resource drain, I would argue, is not true. We've actually -- we're about 31%, 32% down in terms of headcount right now here at RAVE. So we've done a lot of restructuring, and we've done a lot of shared resources. So where we used to have people who were exclusively Pie Five -- I think we only have 2 people on corporate staff who are Pie Five exclusive. These…

Yes. And so I mean just to say -- one follow-up anyway and then I hold on and let somebody else. But I guess really the question is -- and I understand you've been slowed down, believe me and I'm not being critical at all because I understand the situation. And I used to be -- I don't know, there was -- there still is but there's a regional pizza chain called -- in the northeast called Bertucci's. It was a brick oven pizza place. It still is around, but in the first sort of 10 years, we went like crazy. And I was part of the start-up team on that. And it was highly, highly differentiated at time. Brick oven -- we're the first brick oven pizzerias. And we just -- it was very, very -- is really well-differentiated model. And so what my -- and it was clear when you talked about that. And so with Pie Five, when I -- a number of years ago now, I actually went down to the Maryland opening back when -- which probably doesn't exist at this point anymore. And one of the things that frustrated me is that in going to a number of Pie Fives, I thought the product was significantly better than the Blaze product, which I went to a number of. I just -- now I haven't been there -- into a Blaze in a long time, but at the time I thought that the Pie Five product was significantly better. I thought the Blaze was [ smooshy ]. It was -- it just -- I just did not find it as good of a product. And yet, they're clearly doing things from a sort of marketing and development setting, for whatever reason, is gaining them the…

Yes, you got it, John. I'm going to go ahead and not accept your apology for being critical. Investors need to be critical. That's the market, that's the system. Our franchisees get to be critical. And if any of us took this job, they can, there'd be no criticism or if we're...

No, I mean for COVID. I mean for COVID. Not -- for COVID, I don't think it's fair to criticize anybody for the COVID. The other things, I'm happy to.

Sure point. We welcome it. It keeps us sharp and on our toes. And I started my career and kind of grew up in marketing. And if you ever worked in franchise business as a marketer, that's where everybody is most critical generally. So we accept it, and there's -- we're highly critical of folks who ran the ship here before we got there. We're highly critical of ourselves and each other, and we should be. So what I would tell you about food quality and can we be better? When I got to Domino's, there was a belief that we were going to be fast at delivery but we really couldn't touch Pizza Hut and especially Papa John's in product quality. And I presented that to the management team and to our system as a self-limiting myth. We can do anything that we want to do if we want it bad enough and we put our minds to it. Does that mean we're going to go have 5,000 stores? I don't think that's in the offing, probably certainly in my career span. But it's not what we're looking for. We've got 32 Pie Fives up and running right now. There's a market opportunity that's the big guys...

Are those profitable stores right now?

Some of them are profitable, some of them are not profitable. To be honest, we have the right to collect franchise P&Ls, and we've not done that in several years. That was actually on Clint's to-do list when he came in. And given all of the crisis management that we have, we haven't been able to do that. We want to do collect our franchisees' P&Ls. We want to rack and stack them. Some folks are good at sales, some are good at cost management, some are good at labor, some are good at food. We want to find who in our system is doing the best and replicate that kind of across. So both -- on both brands, we will be collecting P&Ls. We've been threatening that, but we've yet to do it because of the pandemic. But my point on kind of product quality, Pie Five is currently not advantaged in food quality. We've got research and data that shows that we're actually at a significant disadvantage. I don't know what -- where we were when you were out at the store in Maryland. But I can tell you where we stand right now, we are disadvantaged, and that's unfortunate. The good news is we've got an amazing culinary and marketing team and we can make good food. And we can do it at a price point and a value to consumers, and we can make money doing it. So product quality and product differentiation are critical. We also have a lot of things that we do at Pie Five that add labor without adding a lot of quality. It's just work, and the food is not any better. Dessert is an example. We make desserts from scratch in Pie Five. And I didn't know it. And you…

And our next question comes from [ Michael Disler ] with [ AM&X ].

Brandon, you may recall, I was on your very first call, your very first call as a CEO, and have been with you ever since and a long-time shareholder as well. And I wanted to welcome Clint. Your resume is equally impressive, just thought I'd throw that in there. I'll be much briefer in general. I have actually some really specific stuff that you can just answer really quick, if you would. There was a mention, I believe, in The Dallas Morning News. It's called that some northern Texas firms were returning their PPP funds. And I know you guys have received some. Did you have to return those funds?

Michael, let me start by saying this, everybody likes to pick on the government and big banks. I'm no exception. I love to rail about those guys while having a beer. It makes me feel smart. But to be honest, the SBA did a fantastic job of processing our applications. And for as much flak as those guys have taken, I think they've done an amazing job, and I mean that. Same thing. We bank with Chase. We were on the phone. Clint and I were both on the phone at midnight on a Sunday night with our banker. [ Kelyn ], I don't remember Kelyn's last name, but he was amazing. And so I just want to start out by thanking both of those big unwieldy institutions. We're nimble and really got after it. We are not returning our SBA loan for the simple fact that we're eligible for it. So there were a lot of heat about -- and I got some heat from some of my friends, postcards and letters and whatnot, about big rich companies like RAVE, publicly traded companies taking the money and the small guys couldn't get it. But the fact is RAVE is not a big, rich company. We've not been profitable in 7 years. We have a market cap under $15 million, which is one of the requirements for being eligible. You need to have made not more than $5 million in the last 2 years. We made less than that significantly, so -- unfortunately. So at the end of the day, we got a loan for $656,830. I know that because I filled out the application at my kitchen table like 9x. So...

I have it in front of me, you amount. Go ahead.

But we -- I will remember that number to the day I die. But we're eligible for the loan. We are grateful to the SBA and everybody who made that possible. We don't have access to other capital. And so that's where -- we're eligible, so we're not returning it.

Good. No, I was just curious because there was no follow-up that I saw in the paper. I don't live anywhere close to you. I'm up in northern -- northeast area. So that's fine. Thank you for the response. Number two, probably more than [ Queen's bailiwick ], which would be on the $4.3 million increase in the reserve against the net deferred tax effects, could you just explain that with 1 sentence of color? A little more?

Yes. So we had a $4 million asset on our balance sheet. A lot of that is predicated upon the idea that forward forecast of profitability. And I think that once we had COVID, it became apparent that the idea of profitability would be a bit further down the road, if you will. And so -- and working with our auditors and then viewing that valuation, we came to the decision that we needed to write that off for the time being.

That's what I wanted to know. So that can be recaptured down the road as you...

It's not absolutely. It is not [indiscernible].

Just want to make sure that people are aware that, that is the case, who may or may not be on this call will read it later. Okay, thank you for that clarity. Number three, just in -- relative to John's prior comments. And Brandon, I think all things considered, you guys are fighting a torrent. So I mean, I laud your efforts, truly, to protect your -- every stakeholder, from customers, franchisees employees and even shareholders. I do like the fact that you're going to play to your strengths and question the -- and that you're questioning the desserts and salads. That's a great plan. Finally, I just -- this is my third question. That was just a comment in relation to what John said. My third question really is just it's timing. I know you're not allowed to say too much other than what we suspect based on third quarter where COVID really didn't enter into the picture till near the end of that quarter. Now you've had a full quarter, and we're touching hereon -- tomorrow is the 30th of June, you're about to close the books. My question is how much more pain have you had to endure in the last 10, 11 weeks since the close of third quarter in terms of sales, et cetera, beyond the disaster that probably befell you come March -- coming into March? And it's just a general question. I know you can't be specific legally. So I just don't hold you to it. I just wanted to get some color on that.

Yes. So as we've noted in the Q here, March was impacted by COVID. I would tell you that the fourth quarter is impacted by COVID. And also -- so our fourth quarter revenues are impacted by COVID, but also our fourth quarter expenses were impacted by our response to COVID. So both of those are true, and I don't want to get into any more specifics other than that -- other than to say we were on it.

Yes. No, I read the actual SEC filing where there's a little more color on it in the management's discussion anyway. Anyway, what I do want to say is I appreciate the level of commitment to hard times and obstacles. And I followed your career for a long time, Brandon, and I hope you can pull the ship together in due course and over time. And I thank you and welcome Clint aboard. I hope you didn't get in right at the end. I think you're going to get in right at the beginning. So thank you both for the effort. And the other 17 who are working their rear ends off. And I will get back in the queue. And keep up the good work as best you can, and I appreciate it.

Michael, thanks so much. We really appreciate it.

[Operator Instructions]

Okay. Thanks, gang. Again, we appreciate your time. We appreciate you listening. We appreciate the attention you give to RAVE. We know we're a small company, but we are a mighty band here. And we hope to have more to discuss with you guys next time. Thanks so much.

And ladies and gentlemen, this will conclude the conference for today. Thank you for attending today's presentation. You may now disconnect your lines at this time.